Jan 27, 2008

Share of average annual household consumption

Indian Household Consumption year over yearThe same furious energy that made India a world-class provider of software and business services is creating a huge urban middle class. By 2025, household spending could more than quadruple, generating the 5th-largest consumer economy on Earth, up from 12th now. About 400 million Indian city dwellers—nearly 100 million more people than the United States has today—will enjoy comfortable living standards. Even India’s most affluent consumers will outnumber not only the comparable segment in China but also the entire current population of Australia.

As a result, the composition of spending has already started to change: discretionary outlays (such as mobile phones) occupy more of India’s shopping basket, even as the absolute sums devoted to necessities, such as food, continue to rise. Above all, consumers will increase the amounts they spend to improve their economic prospects and quality of life—for better health, education, transport, and communications.

This shift has begun at lower income levels than it did elsewhere, so multinationals that compete in the country must keep costs low enough to avoid being squeezed between the desire of so many Indians for a middle-class lifestyle and the realities of their limited budgets.