BrazilEconomic boom will see 500 million Indians enter middle-class within a decade
India’s economy is projected to grow at a base rate of 7.5% annually to 2030 according to an analysis from Bain & Company, with 500 million people moving into the middle- and high-income bracket over the period.
India has boomed in recent years, buoyed by a growing population and rapid economic development. Today the country is the world’s second largest in terms of population and sixth largest in respect to economic clout – with its economy still growing as one of the world’s fastest, at 7.5% in 2017. As incomes have risen, millions of citizens have moved up into new consumer categories.
An analysis from Bain & Company for the World Economic Forum shows that the future is also bright for the country according to long-term fundamentals, with a growing GDP of which around 60% is domestic private consumption, insulating it to a degree. There is also a healthy savings rate, at around 22% of income, and a large working age population, with a median age of 28 years.
The Indian economy is projected to enjoy strong growth in both the low and high case scenarios considered in the analysis. The base case will see economic growth stable at 7.5% on average until 2030, with just a 1% degree shift either side of this figure for the lower and the higher case scenarios. The effect of growth for the base case is an additional 500 million middle- and high-income earners added to the economy to 2030, with 50 million fewer in the low case scenario – pushing the share of upper-middle and high-income earners to 48% of the total population.
The firm’s projection of income growth would see consumption spending increase from $1.5 trillion to a massive $5.7 trillion by 2030. The growth is largely driven by a huge increase in the country’s middle class households, which are set to expand by 140 million, while the high-income earners are set to grow by 21 million – together a 51% increase on 2018. The middle class will see its share of total consumption increase from 30% to 47%, while around 25 million people will be rise out of poverty, with total poverty decreasing from 15% to 5% of the population.
Unlike much of the developing world, India is ageing slowly, with a current median working population age of 28 which is set to rise only slightly, to 31, by 2030. The effect is that by 2030 the country will have the largest working age population at the youngest relative age. The rural population has also shrunk considerably since 2005, falling from 59% of the population to 51%.
The developed rural population has grown slowly over the same period, from 13% to 15%. The urban population meanwhile has increased from 28% of the population to 34%. Urbanisation is also set to continue. By 2030, the rural population is projected to decrease further, to 44%, with developed rural only growing by 1% in the period. Urban development is projected to hit around 40% by 2030.
The ongoing urbanisation and rising incomes will lead to further consumer shifts. With considerable changes to income distribution across India, growth in the middle class segment is expected to see around $2 trillion in incremental spending on affordable mid-priced offerings, while a further $2 trillion will be shifted to more premium product lines as consumers trade up.
Bain notes that buying behaviour will shift in line with both trading up as well as in new category spending. In food for instance, around 25% incremental spending will shift towards more premium goods, while around 32% will shift into health and organic food stuffs. Personal care meanwhile is set to see considerable premiumisation, at 59% of incremental spending, as well as a broadening of product categories.
“India will continue on its path as one of the world’s most dynamic consumption environments, propelled by five major drivers: income growth; steady and dispersed urbanisation; favourable demographics; technology and innovation; and evolving consumer attitudes,” states the report. “As these drivers move India forward, many stakeholders have the potential to shape the country’s positive consumption future.”
It concludes: “The time is ripe for these stakeholders to come together and address head-on the most pressing societal challenges facing India today – skilling and job creation, socio-economic inclusion of rural India, and building a healthy and sustainable future for its citizens. Collaborative efforts to address these challenges will unlock the full potential of a young, connected and thriving nation, and establish India as a model for fast-growing consumer markets of the world.”
