India to become 5th largest consumer economy by 2025
While financial crisis in the developed economies are seeing a drop in consumer spending in these countries, multinational companies are eyeing the emerging Asian economies as the new market for their products. Driving on the wave of rejuvenating economic growth fuelled largely by IT revolution and the ever-growing importance of business outsourcing the Indian economy is all set to see a surge in consumer demand. The rise in average disposable income has made India the 12th largest consumer economy in the world. Studies by market research firms show that the aggregate level of consumer spending would quadruple in the coming years with consumer spending becoming $1.78 trillion by 2025 making it the fifth largest consumer economy by 2025.
Despite of the recent decline in GDP growth rate from above 9 percent to the projected growth rate at 8.7% this fiscal year ending in March 31, the annual disposable income of the middle class population of the country is between $5000 and $25000. The middle class Indians who are largely responsible for the growing consumer spending would comprise 41% of the total Indian population by 2025, according to projections made by Mckinsey Global Institute. Over 23 million Indians, more than the population of Australia, will number among the wealthiest citizens. The change in lifestyle has shifted the mode of spending from food and clothing to consumer electronics items including mobile phones and electronic appliances.
The fast moving consumer goods sector (FMCG) is the fourth largest sector in the economy. With per capita income nearly doubling between a short span of four year, between 2002-03 and 2006-07, the size of the FMCG sector exceeded $18 billion in 2007. Market research firm A C Nielsen has identified 24 categories in personal grooming space such as perfumes, body washes and hair colors recording an average 13% growth rate. The ORG-GFK data suggests that the combined size of the five big-ticket product categories that include color television, refrigerators, washing machines, air conditioners and microwave ovens rose from $4.1 billion in 2006 to $5.1 billion in 2007.
With broadband penetrating every corner of the country, more and more Indians are spending a greater time on online purchases. According to a survey by A C Nielsen, 78% of Indians with access to the internet make online purchases, with credit cards being the preferred mode of payment. Indians have merged as the third largest credit card users in the world.
With growth in consumer demands, a large number of international giants like Kyocera Wireless, Fairchild and AMD are opening R&D centers in India to make their products more innovative to suit the demands of the Indian consumers.