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India's middle class to shape global mkts

Citing a research from the McKinsey Global Institute, US weekly Newsweek says India's rising middle class will reshape global markets. | By HT Correspondent, Washington
UPDATED ON MAY 22, 2007 12:48 PM IST

Poised to undergos a remarkable transformation, India will surpass Germany as the world's fifth largest consumer market in two decades as its rising and unique middle class reshapes global markets, says Newsweek magazine.

Citing new research from the McKinsey Global Institute (MGI), the US weekly says in its May 28 issue that within a generation, the country will become a nation of upwardly mobile middle-class households, consuming goods ranging from high-end cars to designer clothing.

MGI's research portrays a dramatic transformation that will touch Indians up and down the income pyramid, from the poorest rural farmer to the wealthiest IT entrepreneur.

Companies that fail to understand the unique desires and tastes of the new Indian consumer will miss out on a half-billion-strong market that along with China ranks as one of the most important growth opportunities of the next two decades, Newsweek said.

The middle class currently numbers some 50 million people, but by 2025 will have expanded dramatically to 583 million people - some 41 per cent of the population. These households will see their incomes balloon to 51.5 trillion rupees ($1.1 billion) - 11 times the level of today and 58 per cent of total Indian income.

As the seismic wave of income growth rolls across Indian society, the character of consumption will change dramatically over the next 20 years, the weekly said.

A huge shift is underway from spending on necessities such as food and clothing to choice-based spending on categories such as household appliances and restaurants.

Households that can afford discretionary consumption will grow from 8 million today to 94 million by 2025, it said noting long-established spending attitudes are already changing rapidly.

Of course, many of India's new consumers still have relatively modest means. Despite rapidly rising incomes, average spending will still lag behind countries such as Indonesia, Newsweek said.

Like China's, India's market will be based more on volume than on per capita spending. While luxury-goods makers may be able to sell to India's global consumers with little modification to their products, those selling to India's new middle class will need to be innovative to square the difference between the rising aspirations of consumers and their still-modest pocketbooks, it said.

India's shift to a consumer society will only accelerate as more people become "connected" via mobile phones, the Internet and TVs, and as advertising becomes a more prominent part of people's lives. Before India embarked on its programme of economic reforms, the country had only 0.8 fixed telephones per 100 people, and virtually no mobile phones.

Noting that India's mobile market is currently growing even faster than China's, Newsweek expects overall communications spending to continue to grow at a very rapid 13.4 per cent per year over the next two decades.

Other fast-growing categories will include transport, education and health care. "It is testament to the determination of Indians to work for a more prosperous future that the highest priorities will be these 'economically enabling' areas of spending that boost productivity and economic growth," the news magazine said.

Indeed, Indians will spend more of their disposable income on these categories than consumers in just about any other country.

While India's rising wealth will provide more resources to tackle these issues, its fast-growing population will stress its public services even further. India's success to date has been built on its human capital-a hardworking and increasingly educated population, it said.

"If the country's growth is to continue, the reforms that have revolutionised its private sector will need to reach its notorious government bureaucracy as well. If this does occur, the dynamism of India's people will do the rest," Newsweek concluded.

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