The growth of India

1
The growth of Indias middle class and the
emergence of a consumer economy

• Based on the article by
• Eric D Beinhockner, Diana Farrell,
• Adil S Zainulbhai
• McKinsey Quarterly, 2007, No. 3

2
Introduction

• According to McKinsey Global institute, average
  household incomes in India will triple over the
  next two decades.
• India will become the sixth largest consumer
  economy in the world by 2025, up from 12th now.
• In 2005, private spending reached Rs. 17 trillion
  or 60 of Indias GDP.
• But aggregate spending may be spread across
  hundreds of millions of households.
• They may have very modest incomes by developed
  country standards and show high sensitivity to
  price and value.

3
Challenges

• There are large regional disparities in growth
  reduction of poverty.
• The southern and western states are more
  prosperous.
• But the northern (with the exception of Delhi,
  Haryana, Himachal Pradesh and Punjab) and eastern
  states are lagging behind.
• India also remains the least urbanized (29) of
  the emerging Asian economies.
• Bureaucratic hurdles remain formidable.
• Infrastructure problems are plenty urban
  infrastructure is already heavily overburdened.

4
Growth of the middle class

• Along with the shift from rural to urban
  consumption, India will witness a rapid growth of
  the middle class households with disposable
  incomes ranging from Rs. 200,000 to Rs. 1,000,000
  per year.
• This class forms currently 5 of the population.
• By 2025, it may form 41 of the population.
• By 2025, the Indian middle class will dominate
  the cities.

5
High Net worth individuals

• Those earning more than Rs. 1,000,000 a year
  will make up 24 million by 2025 or larger than
  the current population of Australia.
• These people live in the eight largest cities.
• They have a global outlook.
• They have tastes similar to those of their
  counterparts in the developed countries brand
  name goods, vacations abroad, the latest consumer
  electronics and high end cars.

6
Changes in consumption patterns

• Increase in discretionary expenditures likely.
• Spending on health, education, transport and
  communications will increase.
• Recreational products and services will account
  for a smaller slice of household spending than in
  other countries.

7
Conclusion

• MNCs are likely to find themselves squeezed
  between the desire of the countrys consumers for
  a modern middle class lifestyle and the realities
  of their limited budgets.
• In 2005, the average middle class family in India
  spent just Rs. 300,000 or 6,600.
• MNCs must be able to deliver an aspirational
  middle-class lifestyle to families on an Indian
  budget.
• Companies should be able to come up with new
  business models, products with carefully targeted
  features and brands that appeal to the countrys
  upwardly mobile people.