India’s consuming class has put the nation on the world map, with every large multinational scurrying to set up shop in India.

Two centuries ago, India was known as a ‘bird of gold’.  To-day, it is fast regaining that status, thanks to its burgeoning consuming class.  From consumer durables to cars, laptops, mobile phones, cinema tickets, fast food and luxury goods, Indian consumers are lapping it all up.

Unlike China, where growth in India has largely been investment-led, the growth in India has largely been led by consumption.  With the changing economic scenario, it’s not only the rich who are spending more.  It is the great Indian middle class that’s thrown caution to the winds and is on a spending juggernaut.

India is currently the twelfth largest consumer market in the world.  According to a study by McKinsey Global Institute, India is likely to join the premier league of the world’s consumer markets by 2025, improving its position to fifth place.

The face of changing India is reflected in the growth numbers across sectors such as airlines, hotels, FMCG, automobiles, retail and telecommunications.  For instance, passenger car sales have been growing at a steady pace, recording a growth rate of 12.63 per cent during April-July 2007.  Similarly, organised retail is growing at rates of over 49%.  India’s FMCG sector grew by 22 per cent in 2006, to touch a market size of over $17.36 billion.  It is set to treble from $11.6 billion in 2003 to $33.4 billion in 2015.

On the one hand, the Indian middle, class is loosening its purse-strings; on the other, companies are doling out lower priced products, economical tariffs, attractive finance options and other marketing schemes to hook more buyers.

For instance, the number of airline passengers rose by over 18% to 86.8 million in the financial year 2006-7, thanks to the influx of low-cost airlines.  Similarly, with the lower of tariffs, new schemes and the availability of cheaper handsets, the penetration of mobile telephones has increased rapidly.  Mobile phone production in India will grow at a rate of 28.3 per cent – from 31 million units in 2006 to 107 million in 2011.  The Indian mobile phone market is the fastest growing in the world, adding around 5 million subscribers each month....it added 15.5 million subscribers in the first quarter of this year, taking the total to 165.1 million.

Urban India’s newfound romance with malls is visible everywhere – from small towns to metros.  According to the India Retail Report, 2007, during 2006, total private consumption touched $448 billion (at current prices) with the organised sector accounting for $13.4 billion business, increasing its share to 4.6 per cent (up from 2% in 2003) of the total Indian retail value that stood at $293 billion.  Moving forward, organised retailing is projected to grow at around 37% in 2007 and 42% in 2008.

Little wonder than that almost all large retailers – such as Pantaloon, Reliance, RPG, Lifestyle, Subhiksha, Rahejas, Piramyd, Trent and the Vishal Group, - have big expansion plans.  Reliance alone is investing $7.3 billion to set up multiple retail formats with expected sales of around $22 billion by 2009-10.  The Bharti Group plans to invest around $7.7 billion in creating a retail network in the country, including 100 hypermalls and several hundred small stores.  It has signed a joint venture agreement with Wal-Mart.

With the largest population of the young in the world, over 890 million people are below 45 years of age – India is indeed a resplendent market.  India has more English speaking people than in the whole of Europe.  And this predominantly young population has proved to the world that Indian manpower is not just low-cost, but also highly skilled and efficient.  It is the one force that has taken India to the big league, making it a potential economic powerhouse.

As per an NCAER study “The Great Indian Middle Class” , in 1995-96, barely three per cent of the population used to earn above $4,877 per annum.  In 2002-3, that proportion rose to 6% (or roughly 60 million people) and today it is estimated to be around 100 million.  By 2010, this number should rise to around 150 million, with roughly 10 million earning over $24,384 (rs. 10 lakh), per annum.  In 2002-3, that proportion rose to 6%  (or roughly 60 million people) and today, it is estimated to be around 100 million.  By 2010, this number should rise to around 150 million, with roughly 10 million earning over $24,384 (R$s.10 lakh) and more.

“India’s continued high growth rate since 2003 represents a structural increase rather than simply a cyclical upturn”, says a recent Global Economics Paper, brought out by Goldman Sachs India.  The recent growth spurt was achieved primarily through a surge in productivity and is sustainable.  According to this report, India’s contribution to world growth will be “high and increasing”.  India’s GDP (in dollar terms) could surpass that of the US before 2050, making it the second largest economy after China.

The change in consumer mindsets in the post-liberalisation era has been rather drastic.  In the pre-liberalisation era, most Indian households saved for a rainy day.  Today, the Indian consumer thrives on loans and credit cards.  With a job scene that is booming, a hose of avenues are open to even college students.  Retail chains, BPSs’ KPO, mobile phone companies, data processing firms have all contributed to the job explosion.  On the employment front, it is expected that an additional 25 million jobs will be created by the end of this decade as a result of export growth.

As the Indian economy grows, so will its ‘consuming’ class.  It is estimated that today, 70 million Indians earn a salary of over $19,507 (Rs. 800,000) a year, a figure that is set to rise to 140 million by 2011.  With increases in income, the shape of the country’s income pyramid will also change dramatically.  “Over 291 million people will move from desperate poverty to a more sustainable life, and India’s middle class will swell by more than 10 times to 583 million people by 2025”, says a recent study ‘Bird of Gold’: The Rise of India’s Consumer Market, brought out by McKinsey & Co.  By 2025, over 23 million Indians – more than the population of Australia today, are expected to number among the country’s wealthiest citizens.

With rising incomes, aggregate consumption in India is expected to grow four-folds in real terms- from $420.7 billion in 2006 to $1.3 trillion in 2025. 

India has entered a long term virtuous cycle in which rising income lead to rising consumption, which in turn creates more business opportunities and employment, thereby further fuelling GDP and income growth:  India’s growth is truly unstoppable.

While China will continue to grow faster than India over the next decade, after than, Chinese growth will be held back by its rapidly ageing population and diminishing returns to its investment-led strategy.  By contrast, India has a much younger population with faster-growing labour forces.