Mumbai: Indian incomes could triple and its middle class could grow more than 10 times, to 583 million by 2025, from the current 50 million, if its economy grows at an average of 7.3% for two decades, says a McKinsey Global Institute report. It is the research arm of management consultant McKinsey and Co.
Around 291 million people could move up from poverty, says the report, which goes on to claim that “India’s economic reforms, and the increased growth that has resulted, have been the most successful anti-poverty programme, in the country’s history.”
McKinsey’s managing director Adil Zainulbhai said, “If the 7.3% growth rate is sustained for around two decades, it will be among the fastest growth rates in history.” Rising incomes will drive consumption, with aggregate consumption set to quadruple by 2025 to Rs70 lakh crore from Rs17 lakh crore now, the report says. This could make India the world’s fifth-largest consumer market by 2025, from the 12th largest. “The drivers for consumption will be economic growth, more people entering the workforce and a change in spending patterns,” said Zainulbhai.
The report tries to take a long-term view of growth, while many Indian forecasts, especially government ones, tend to look at five-year windows. Indian per capita income is likely to rise to $1,064 by 2025 from $334 in 2005, the report predicts. According to World Bank data, India’s per capita gross national income in 2005 was $730.
McKinsey’s researchers made their projections by creating econometric models that used data from the Market Information Survey of Households, created by the National Council of Applied Economic Research’s survey of three lakh households and the National Sample Survey Organization’s database of consumer and expenditure surveys from rural and urban blocks.
The report says urban consumption will form 62% of the total in 2025, from 43% currently, driven by a 5.8% a year increase in incomes compared with a 3.6% income increase in rural areas. Over the next two decades, 79% of all spending will come from the middle class and rich, compared with the current 75% spending from the deprived, the report says.
As poverty is alleviated, Indians will spend less on basic necessities. Spending on food, beverages and tobacco will drop to 25% in 2025 from 42% in 2005, while health care costs will rise to 13% from 7%.