In This Article
- Exhibit 1: India’s private consumption as a share of GDP is closer to that of Japan and the United States that it is to China’s
- Exhibit 2: India will see further reduction in poverty and a growing middle class.
- Exhibit 3: A continuing rise in incomes nationally will spur a tenfold increase in the size of India’s middle class.
- Exhibit 4: Income growth in India’s urban areas will lead to waves of dominant segments.
- Interactive: At home with India's middle class
- Exhibit 5: The focus of India’s household budgets will shift from basic necessities to discretionary items.
- Exhibit : Map
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India’s rapid economic growth has set the stage for fundamental change among the country’s consumers. The same energy that has lifted hundreds of millions of Indians out of desperate poverty is creating a massive middle class centered in the cities. A new study by the McKinsey Global Institute (MGI) suggests that if India continues its recent growth, average household incomes will triple over the next two decades and it will become the world’s 5th-largest consumer economy by 2025, up from 12th now. (The full report, The ‘Bird of Gold’: The Rise of India’s Consumer Market, is available free of charge online.) Along the way, spending patterns will shift significantly as discretionary purchases capture a majority of consumer spending. India’s potential should make it a high priority for most consumer goods businesses, but to succeed in this complex market they must overcome major challenges.
Private consumption has already played a much larger role in India’s growth than it has in that of other developing countries. In 2005 private spending reached about 17 trillion Indian rupees1 ($372 billion), accounting for more than 60 percent of India’s GDP, so in this respect the country is closer to developed economies such...