Great Indian Middle Class

The great Indian middle class has been a hot topic. An article in the latest ‘McKinsey Quarterly’ offers the following projections about the great middle class in India. It is certainly exciting.

 Over the next 20 years, India will likely grow to become the world’s fifth-largest consumer economy, up from 12th now.

 If India can achieve 7.3 percent annual growth – a reasonable assumption – consumer spending will quadruple, from about 17 trillion Indian rupees ($372 billion) in 2005 to 70 trillion rupees in 2025. The dramatic growth in India’s middle class, from 50 million to 583 million people, will power this surge.

 In 1985, 93% of the population lived on a household income of less than 90,000 rupees a year, or about a dollar per person per day; by 2005 that proportion had been cut nearly in half, to 54%. By the estimate, 431 million fewer Indians live in extreme poverty today than would have if poverty had remained stuck at the 1985 level. If India can achieve 7.3% annual growth over the next 20 years, 465 million more people will be spared a life of extreme deprivation.

 Contrary to popular perceptions, rural India has benefited from this growth: extreme rural poverty has declined from 94% in 1985 to 61% in 2005, and as per projection that it will drop to 26% by 2025.

 The growth that has pulled millions of people out of poverty is also building a huge middle class that will be concentrated in India’s urban areas. In absolute terms the country’s urban population will expand significantly, from 318 million today to 523 million in 2025.

 Today 57 percent of private spending is spread across rural areas, but by 2025 cities will command 62 percent of the country’s spending power.

I personally feel that the definition of the middle class itself is flawed and data collection has its limitations in India. I see it all around. Even the shanties are having all the consumer goods that a middle class household dreamt of possessing earlier. Education has spread fast. Even those, whom I facilitated to get a menial job, could get their children educated well. Those young men are very nicely employed. And for all employed, owning a vehicle and a house is no more a big thing.

India is moving ahead at faster speed than the surveys and reports tell.

Germany based Deutsche Bank has recently come out a report, ‘India Property’. Data are revealing:

  The $48 billion-Indian real estate industry is projected to grow at a yearly growth rate of 21% compounded annually to $140 billion by 2012.

 Consumer spending on mobile telephony was as high as $18 billion compared to $5.3 billion on two-wheelers and $8.3 billion recorded by the top 4 fast moving consumer goods companies in 2006-07.

 The residential real estate market was $45 billion with $16 billion worth of net bank disbursals for mortgages in 2005-06.

 The savings rate has increased from 23% in GDP in 2000-01 to 32% in 2006-07. The deposits rate is expected to reach 40% by 2020.

 Indians accounted for 27% of global gold consumption in 2006, which went up to 39% in the quarter ending June 2007.

 Home ownership is over 90% in rural India. In urban India, home ownership has increased from less than 50% in 1970 to 70% in 2001.

Another area of boom is aviation. The Indian fleet that comprised 170 aircrafts in May 2006 is now almost twice with 312 units. With the scheduled additions this year, the number will rise to 370 by the year-end. And by the end of 2010, India’s fleet will reach approximately 500-550 aircrafts. And within the same period, the domestic market size will cross 60 million and international traffic 20 million. Aircraft manufacturer Airbus pegs India’s demand at 1100 aircraft, worth US $ 105 billion.

India and Indians, particularly the great Indian middle class, are flying high with aspirations growing exponentially. And this is with only 10% of application. It is difficult to dream the future of India.

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