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Growing middle class in India to fuel consumption demand

Growing middle class in India to fuel consumption demand
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First Published: Mon, Oct 17 2011. 09 46 PM IST

Updated: Mon, Oct 17 2011. 09 46 PM IST
India has been a consumption-driven economy for the last many decades and will continue to be so over the coming two decades. As per McKinsey Global Institute (MGI), spending in India is expected to increase about 2.5 times by 2025. The middle class population in India is going to increase by about 12 times during 2005-2025, fuelling consumption demand.
The growing middle class and increasing disposable income provides many investment opportunities in the consumption domain. We have covered companies which are market leaders in their core product categories (TTK Prestige Ltd, Symphony Ltd, Talwalkars Better Fitness Value Ltd (TBFV), V-Guard Industries Ltd, Hawkins Cookers Ltd and Hitachi Home and Life Solutions (India Ltd) and will be significant beneficiaries of the increased consumption demand in India over the next two decades.
By Bloomberg
India’s gross domestic product (GDP) at constant prices had grown about four times during 1990-2009 and is expected to grow by about five times by 2030, according to data sourced from MGI. The increase in GDP is going to be beneficial for many sectors and provides many investment opportunities.
Private consumption has been the driver of Indian GDP for the past many decades. It has nearly doubled over 2003-09 and is likely to further increase by about 2.5 times by 2030. The increase in private consumption is growing primarily due to rising income.
As per the United Nations, urbanization in India is expected to increase from about 30% in 2010 to about 40% by 2030 and the number of people living in urban areas will increase by about 62% to 59 billion. Also, the middle class population in India will increase by about 12 times to 580 million and will constitute 41% of the population by 2025 as against about 5% in 2005, according to data sourced from MGI. The per capita income of India is expected to increase about 18 times by 2039, according to Emerging Market Forum. Disposable income for households is expected to increase by about three times by 2025, according to MGI.
Growing urbanization, a young working-age population, higher income will result in increased spending and, there will be a consumption boom over the next two decades. Growing income and rising disposable income over the next two decades will result in the discretionary spending to increase from about 52% in 2005 to about 70% of the customer wallet by 2025, according to MGI. The growing discretionary spending will result in demand for appliances, communication and healthcare.
Also See | Changing Scenario (PDF)
The appliance industry will be a significant beneficiary of rising income, growing middle class and increasing urbanization in the country.
Also, under-penetration and growing perception of considering appliances as necessity will result in high demand. The appliance market is expected to witness a compounded annual growth rate of 11.4% during 2005-2025 in urban India, and companies which are market leaders in various home appliance categories will see high growth rates over the next two decades.
Edited excerpts from a report by IDBI Capital. Send your comments at mintmoney@livemint.com
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First Published: Mon, Oct 17 2011. 09 46 PM IST
More Topics: Consumption | Appliances | Spending | Economy | India |