hungry for India’s middle class

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India’s middle class, which according to a McKinsey report was 50 million in 2005, would jump by 11.6 times or about 583 million by the end of 2025.
And, people who earn Rs. 10 lakh (Rs. 1 million) per annum would grow four-fold from the current 4.4 million households to 18.1 million by 2020.

The reason is higher incomes. McKinsey’s estimates suggest that as a result of rising incomes, 291 million people will move out of poverty and climb to higher income groups.

Further, with India’s gross domestic product growing at about 7 percent yearly in the past 10 years; its per capita income has grown by 9.11 percent annually from $439 per person in 1999 to $1,050 per person in 2009.

Also worth noting, according to Edelweiss Capital, is that this figure would further jump by over three times to $3,231 per person by 2020.

“In the near term, the government stimulus programs and personal tax incentives will mean higher disposable income.

“Apart from that, if we take a view beyond 18-24 months, there are other triggers such as creation of one million private sector jobs, and recruitments at IT (information technology), PSU (public sector undertaking) banks and insurance companies.

“Additionally, hike in salaries by 10-15 percent, implementation of Sixth Pay Commission will lead to higher discretionary spending,” says Sachchidanand Shukla, economist, Enam Securities.

In sum, the ripple effect of rapid urbanization, a burgeoning middle class, with higher disposable incomes, should favor consumption-based sectors.
The Indian automobile industry is expected to post robust annual growth rates of about 10-12 percent.

The opportunity would be more for four-wheeler companies such as Maruti due to improving affordability, low penetration (just 20 cars per 1,000 against 600-900 cars in the developed world) and emergence of a large, well-heeled middle class.

“India has one of the lowest vehicle penetration rates in the world. Given that India also has one of the youngest populations — half of its 110 crore-plus (1.1 billion-plus) people are less than 25 years old, compared to 36 percent in China and less than 30 percent in the developed nations — car sales will undoubtedly continue to soar in the next few years,” says Marc Faber, author of the newsletter, Gloom, Boom and Doom.

Rapid urbanization and higher disposable incomes are likely to push the organized retailing sector to higher growth orbit going ahead.

Companies such as Pantaloon, India’s largest listed retailer, will be key beneficiaries.

According to ratings agency Crisil, the industry, which was at  Rs. 90,000 crore (Rs. 900 billion) in 2007-08, would grow at 18.9 percent annually to touch Rs. 2 trillion by 2012-13.

Edelweiss predicts that the sector will record a growth of 18 percent annually till the year 2020.

India’s organized retail penetration was about 5.5 percent in FY08, compared to 20 percent in the case of China and 85 percent for the US. India’s share of organized retail will increase to about 9.5 percent by the year 2020.

Higher incomes, demand for quality healthcare, increased investments by the government and private sector will lead to more opportunities for healthcare services companies.

The sector has grown at 9-10 percent annually over the past 10 years.

Major beneficiaries in this space could be healthcare major Fortis and Apollo Hospitals.

According to Edelweiss Capital, the industry will grow at about 17.7 percent annually to Rs. 12.3 trillion compared to Rs. 2.1 trillion in FY09.

Healthcare, which accounts for about 4.7 percent of an individual’s wallet, is estimated to double by 2020.

India has the largest student population in the world.

With economic growth leading to higher spending on education, investments by the private sector and the government, considering the private-public partnership model for building infrastructure for schools, companies in this sector such as Educomp should reap the gains.

Further, low literacy rates of 61 percent, increasing per capita income and affordability would benefit the sector.

Given these opportunities, the size of the industry (private sector) will grow (17 percent annually) by almost six-fold to Rs. 5.10 trillion over the next 10 years from Rs. 90,000 crore (Rs. 900 billion) currently.

According to KPMG, media spending in India is 0.41 percent of GDP, half the world average of 0.80 percent, and much lower compared to developed countries.

India offers a lot of opportunity for companies in this sector, given a large population, growing urbanization, increase in per capita income and higher discretionary incomes, along with increasing advertisement spend on the back of higher economic growth.

A Ficci-KPMG report states that the industry stood at Rs. 58,700 crore in 2009 and is expected to grow at 13.2 percent annually to reach Rs. 1,09,200 crore (Rs. 1,092 billion) by 2014.

The growth is expected to be higher in the case of television, radio, gaming, music and Internet-based media and entertainment.


International perceptions of India

“India’s highly educated workforce, management talent, rule of law, transparency, cultural affinity and regulator environment are more favorable than China’s.”
A.T. Kearney FDI Index Report

“India is an interesting combination, world-class talent that can speak English and a strong technological expertise.”
Tony Wright, Chairman, Lowe Worldwide

“The courageous reforms have led to enormous economic growth in India. With a growth rate of over 8 percent, India ranks at the top even in this very difficult period globally.”
Gerhard Schroeder, Ex-Chancellor, Germany.

“The economic dominance of the US is already over. What is emerging is a world economy. India is becoming a powerhouse very fast.”
Peter Drucker, Management Guru

“India’s success rate vis-à-vis Braitain’s in the entrepreneurial scenario is a lot higher. Im going to go back and work towards this.”
HRH Prince Charles during his recent visit to India

“What’s struck me is the energy and restless ambition in India. You can actually, tangibly feel the drive…”
Peter Knapp, Executive Creative Director, Landor Associates

“Like people study political science, culture, public health, economics, law and medicine, students in Harvard will now study India as subject.”
Lawrence Summers, President, Harvard University

“With the Indian economy showing 8-9 percent growth over the years, more and more Japanese investors are becoming keen to invest in this emerging market.”
Yoshihiro Hasegawa, Chief Representative, Daiwa Securities SMBC Co. Ltd.

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