The ‘Bird of Gold’ : The rise of India’s consumer market

Private equity and venture capital funds have been betting on Indian domestic consumption story for a year or two now. They have reasons to believe that they are on the right path. No less than McKinsey Global Institute has concluded that India will be one of the world’s largest consumer markets by 2025. A survey by MGI - titled The ‘Bird of Gold’: The rise of India’s consumer market - said that India will catapult to the fifth largest consumption market by 2025 from the current 12th rank.
But there is a caveat. The country has to sustain and accelerate the economic growth (the study is based on the assumption that GDP growth will grow at an average compounded growth of 7.3 per cent a year).
So what does it mean? By 2025, India’s middle class may have multiplied 12 times, to reach 583 million from the current 50 million. Not just that, there will be over real “wealthy” 23 million Indians, while the number of the poor will drop from 54 per cent of the population in 2005 to 22 per cent by 2025.
The study forecasts that aggregate consumption in India will grow fourfold in real terms, from Rs 17 trillion at present to Rs 70 trillion by 2025. Essentially, the Indian income levels will almost triple.

What Will They Spend On
The study says the expenditure on foods, beverage and tobacco will see a remarkable drop as a proportion to overall expenditure by 2025. They may remain the single largest category in terms of spend, but their share will drop to 25 per cent from 42 per cent.
So who will benefit? Transport (aviation, anyone?) and healthcare will be the second and third biggest markets by then, according to the study. Communication will grow the fastest - at 13 per cent a year on an aggregate basis. See the graph on the right.

You can download the full report here.

# source: The ‘Bird of Gold’ : The rise of India’s consumer market, McKinsey Global Institue, 3rd May 2007.