Close on heels of India becoming the world's 12th trillion dollar economy last week, comes the report from McKinsey Global Institute (MGI), the economics research arm of McKinsey's, predicting that India is well on its way to become the world's 5thlargest consumer market by 2025.
Currently, India is ranked as the 12th largest consumer market in the world.
When the huge middle class will emerge as the big force, is the question and not if it will. Indian incomes will almost triple if the government forges ahead on a systematic reform programme, promotes competition, contains the fiscal deficit and inflation, and invests in infrastructure, healthcare and education.
According to MGI forecast, if the country's growth rate continues to remain as high as now (9%), aggregate consumption in real terms in India will grow two fold from Rs 17 trillion today to Rs 34 trillion by 2015, and Rs 70 trillion ( € 1.25 T) by 2025. The consumption level will equal that of Italy by 2015, and Germany by 2025.
The middle class will multiply from current 50 million to 583 million in 2025. More than 291 million Indians will move from poverty to a more sustainable life. More than 23 million Indians will become the country's wealthiest citizens. However, due to large population, the real per capita spending in the country will remain modest at € 870 or Rs. 48,632.
The McKinsey report also predicts geographic profile of India's income and consumption growth to also shift during this period. While, growth in income ( 5.8% per annum) will be fastest in urban areas ;real average household incomes rising from Rs 166,922 today to Rs 513,042 by 2025, income in rural areas will grow at an average of 3.6% per annum. This will make rural households to reach the level of average income equal to current urban household income.
Despite all round growth, by 2025, country's consumer market will continue to largely remain an urban affair. Urban India will still account for a major 62% of consumption, rural India having the balance 38%.
Although, urban Indian population by 2025 will be about two fifth (37%) of the country, it will register almost two third (62%) of the future growth.
The top eight metro and mega cities of the country, over the years, will continue to dominate the consumption. However, tier II and III cities with growing number of middle income consumers, will begin to also look attractive. Cities like Lucknow , Jaipur, Nagpur , Patna , Nashik, and Indore , according to the report, will offer almost two-thirds of the middle class opportunity in the country.
Food, beverages and tobacco will continue to enjoy status of the biggest consumption category, though the share would decrease from current 42 per cent to 25 per cent. Transport and Health care categories are slated to occupy next two positions on consumption rankings. During this period, while Communications with 13% per annum growth will register the fastest growth, transport, personal goods and services, health care, education, and recreation will follow 8% annual growth.
These statistics reflect a very rosy picture for growth in alcohol consumption. With the 10-fold expansion in the middle class and the new rich class growing, wine would take even a bigger share of the alcohol consumption growth. The growth in the imported wine segment vs. Indian wines will depend upon the government policies and the evolution of quality.