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India to be 5th largest mkt by '25: McKinsey

BS Reporter  |  Mumbai 

India will pole-vault into the premier league of the world's consumer markets by 2025, according to a study by the McKinsey Global Institute (MGI), if it sustains and accelerates economic growth.
From the current 12th rank, the study predicts that India's market will be the world's fifth largest, surpassing Germany.
By then, the middle class will have grown almost 12 times, from 50 million today to 583 million. Over 23 million Indians""more than the population of Australia today""will number among the country's wealthiest citizens.
At the same time, overall economic growth will benefit India's poorest people, with the deprived segment dropping from 54 per cent of the population in 2005 to 22 per cent by 2025.
The report says a further 291 million people will move out of poverty during a period when 322 million people will be added to the country's population. In effect, India will have 465 million fewer poor people by 2025 than if the poverty rate remains at 2005 levels.
Titled "The 'Bird of Gold': The rise of India's consumer market", the study, conducted over a year, says, "The combination of rapidly rising household incomes and a robustly growing population will lead to a striking increase in overall consumer spending."
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.
The study is predicated on India's real GDP growth ranging between 6 per cent and 9 per cent a year over the next two decades.
"Our base case assumes real compound annual growth of 7.3 per cent in the 2005""2025 period, a marked acceleration from the 6 per cent growth of the previous two decades," says the report.
It adds, "This optimism is justified because of the substantial scope for continued productivity increases in Indian businesses, the growing openness and competitiveness of the Indian economy, and favourable demographic trends."
If India achieves this growth path over the next two decades, Indian income levels will almost triple.
As Indians graduate to a better lifestyle, the study predicts that expenditure on foods, beverage and tobacco (FB&T) will see a remarkable drop as a proportion to overall expenditure by 2025. Though FB&T will still be the biggest category, its share will have dropped from 42 per cent to 25 per cent.
Interestingly, communications, which accounts for only 2 per cent of spending today, will be one of the fastest expanding categories with growth of over 13 per cent a year.
However, the booming consumption and the size of India's market will still be tied closely to its large population. On a per capita basis, real spending will remain modest at Rs 48,632 in 2025 "" although this will still represent a tripling from current levels.

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First Published: Fri, May 04 2007. 00:00 IST