by Subhash Arora
On heels of India becoming the world's 12th trillion dollar economy last week, comes the report from McKinsey Global Institute (MGI), the economics research arm of McKinsey's, predicting that India is well on its way to become the world's 5th largest
consumer market by 2025. Currently, India is ranked 12th.
When the burgeoning middle class will emerge as a major force is only a question time. Indian incomes will almost triple if the government forges ahead on a systematic reform programme, promotes competition, contains the fiscal deficit and inflation, and invests in infrastructure, healthcare and education.
According to MGI forecast, if the country's growth rate continues to remain as high as now (9%), aggregate consumption in real terms in India will grow two fold from Rs 17 trillion today to Rs 34 trillion by 2015 and on to Rs 70 trillion (€1.25 trillion) by 2025. At that pace, the consumption level will equal that of Italy by 2015 and of Germany by 2025.
The middle class is expected to multiply from current 50 million to 583 million by 2025. Further, more than 291 million Indians will move from poverty to a more sustainable life. More importantly for the wine sector, some 23 million Indians will become the country's wealthiest citizens. However, due to its large population, the real per capita spending in the country will remain modest at Rs. 48,632 (€870)
The McKinsey report also predicts that the geographic profile of India's income and consumption growth will shift during this period. While, growth in income (5.8% per annum) will be fastest in urban areas, with real average household incomes tripling from Rs 166,922 today to Rs 513,042 (€9,229) by 2025, income in rural areas will grow at an average of only 3.6% per annum.
Thus, although urban Indian population will be about two fifth (37%) of the country by 2025, it will register almost two thirds (62%) of the growth and account for 62% of consumption in 2025. The much larger rural India, with 63% of the population, will consume only 38% of the goods.
The top eight cities will continue to dominate consumption. However, tier II and III cities, with growing number of middle income consumers, will also begin to look more attractive to exporters.
While food, beverages and tobacco will remain the largest consumption category, its share will decrease from its current 42 to 25 per cent by 2025. Transport and health care are slated to occupy the next two positions on consumption rankings. During this period, while communications, with 13% per annum, will register the fastest growth, transport, personal goods and services, health care, education and recreation will follow 8% annual growth.
These statistics reflect a rosy picture for growth in alcohol consumption, in particular wine. With the ten fold expansion in the middle class, and the new rich class growing even faster, wine could take an even bigger share of the growth in alcohol consumption. The ratio of imported versus Indian wines will depend upon government policies and the evolution of quality.
