Urban population to contribute 70-75% of India's GDP by 2020-Barclays

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Urban India could house 35% of India's population and contribute 70-75% of its GDP by 2020, Barclays said in a report. India's urban sector presently constitutes 63% of India's GDP (up from 45% in 1990) and has been its key engine of growth acceleration in the past decade. With only 31% of India's population currently urbanized, along with high population density and low GDP per capita, India's urbanization trends have scope to significantly accelerate.

The report further said that the government's policy, which was biased towards rural areas now appears to be ending as the allocation to the rural employment guarantee scheme has fallen 40% y/y in FY14E, growth in the minimum support price (MSP) of food grains is 5% in FY14 compared to a 12% CAGR over the previous five years and real wage growth in rural India could be <5% in FY14, estimated the report.

However, the government initiatives are expected to revive growth in urban sector. On the other hand, we believe the urban sector could witness a revival as the government focuses initially on increasing subsidies (for cooking gas, electricity and piped water) and then on improving urban infrastructure and organized sector jobs, stated the report.

The resurgence in urban sector will ignite urban consumption, services and infrastructure. The report added, With a per capita GDP of US$3,000, India's urban sector is similar to middle-income economies. Its revival could benefit very different sectors. Key themes of urban revival include: 1) urban consumption - the premium end of consumer staples and four wheelers; 2) urban services - consumer banking, private healthcare, telecom data services and internet; and 3) infrastructure sector - urban infrastructure services and real estate.

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