India set to be the 5th largest consumer market in the world

India could become the world’s fifth-largest consumer market by 2025 if it undertakes the reforms necessary to sustain average annual economic growth of 7.3 per cent, McKinsey, the consultancy, forecasts in a study released on Thursday. Read original article

India is currently the world’s 12th-largest consumer market, on a par with Brazil, whose population is one-sixth as big. It will catch up with that of Italy in 2015 and be smaller only than those of the US, Japan, China and the UK a decade later.

Although income and spending levels will treble by 2025, on a per capita basis they will still have barely caught up with those of Egypt, according to the report: "The bird of gold: the rise of India’s consumer market.

"Put another way: it will take more than a century of growth of more than 7 per cent a year for India’s per capita consumption levels to catch up with those of the US (if the US continued to grow at 2.5 per cent per year)," it said.

The report is the latest in a run of reports produced as marketing tools by investment banks and consultancies that have contributed to what some fear is a potentially overblown sense of inevitability about India’s emergence as an economic superpower.

Goldman Sachs recently predicted that India would overtake the US to become the second-largest economy in the world after China by 2042 in a report that sharply lifted the investment bank’s forecast of the country’s long-term growth rate.

Adil Zainulbhai, head of McKinsey in India, said the surge in incomes would depend on the government undertaking a reform programme to reduce the fiscal deficit, promote competition and invest in infrastructure, healthcare and education.

The size of the "addressable market" for businesses will surge as internal migration lifts the urban population from 318m to 523m and reduces the proportion living in harder-to-reach rural areas from 71 to 63 per cent.

India’s middle class, defined as those earning between $4,400 and $22,000, will rise from 50m people, or 5 per cent of the population, to 583m people, or 41 per cent by 2025, more than tenfold

The number of Indians living in deprivation, defined as those with incomes of less than $5.40 a day, has already fallen from 93 per cent of the population in 1985 to 54 per cent today and will decrease to 22 per cent by 2025.

The number of "global Indians" with incomes of over $22,000 will rise tenfold to 24m, their average incomes climbing from $35,000 in 2005 to $50,000 in 2025.