Mckinsey - The India Consumer Story
This document was uploaded by user and they confirmed that they have the permission to share it. If you are author or own the copyright of this book, please report to us by using this DMCA report form. Report DMCA
Overview
Download & View Mckinsey - The India Consumer Story as PDF for free.
More details
- Words: 4,633
- Pages: 61
McKinsey Global Institute
Tapping Into the Indian Consumer Market The India-Europe Investment Forum 28 June 2007
HOW WILL INDIA’S CONSUMER MARKET EVOLVE IN THE FUTURE? India’s economy has been growing rapidly …
• What impact has growth had on Indian incomes and how quickly will they grow in the future?
• How is the distribution of income changing? When will its middle class take off?
What does this mean for business and investment opportunities?
• How is income growth effecting urban versus rural areas?
• How much of rising Indian incomes will be spent versus saved?
How should companies compete for the “new Indian consumer”?
• What will Indian consumers spend their newfound wealth on?
1
OUR PANEL
• Prashant Desai – Group Head, Investor Relations and New Ventures (PE), Pantaloon Retail (India) Limited
• Richard Fairgrieve – Director of Global Emerging Markets, WestLB Mellon Asset Management
• Dippankar S. Haldar – Chief Executive Officer, Wadhawan Food Retail (P) Limited
• A.P. Parigi – Managing Director and Chief Executive Officer, Entertainment Network (I) Limited
• R. Subramanian – Managing Director, Subhiksha Trading Services
2
KEY FINDINGS FROM McKINSEY GLOBAL INSTITUTE RESEARCH
• Indian incomes will triple over the next two decades, significantly reducing poverty
• India will emerge as the world’s fifth largest consumer economy
• A large urban middle class will develop, but rural areas will benefit too
• Patterns of consumption will shift rapidly towards discretionary spending
• Income and consumption growth will create opportunities and challenges for business and government
3
HOUSEHOLD INCOME GROWTH WILL ACCELERATE ACROSS INDIA Compound annual growth rates 1985–2005
Average household disposable income thousand, Indian rupees, 2000 Actual
500
2005–2025
Forecast
Urban
400 All India
5.8%
300
5.3%
200 4.6%
100
Rural
3.6%
3.6%
2.8%
0 1985
1990
Source: McKinsey Global Institute
1995
2000
2005
2010
2015
2020
2025
4
INDIA WILL SEE CONTINUED REDUCTION IN POVERTY AND GROWTH OF ITS MIDDLE CLASS Share of population in each income bracket %, millions of people
100%
755 1 6
0 0
928 0 2
0
1,107 4 1
18
0
1,278 1 1
Household income brackets thousand, Indian rupees, 2000 1,429 2 9
19
41
Globals (>1,000) Strivers (500–1,000)
32
Seekers (200–500)
36
Aspirers (90–200)
22
Deprived (<90)
Middle class
43 93 80 54 35
1985
1995
2005E
2015F
2025F
Note: Figures are rounded to the nearest integer and may not add up to 100%. Source: McKinsey Global Institute
5
INDIA'S AGGREGATE CONSUMPTION WILL QUADRUPLE OVER THE NEXT 20 YEARS Aggregate consumption across income brackets trillion, Indian rupees, 2000 70
4.1x
34 4 3
10
7 0 5
1
1985
0 0
0 0
14
Globals (>1,000)
16
Strivers (500–1,000) Middle class
25
Seekers (200–500)
Aspirers (90–200)
12
17 1
2
Household income brackets thousand, Indian rupees, 2000
1
9
12
12
5
4
3
2
1995
2005E
2015F
2025F
1
3
Deprived (<90)
Note: Figures are rounded to the nearest integer and may not add up exactly to column totals. Source: McKinsey Global Institute
6
INDIA WILL BECOME THE FIFTH LARGEST CONSUMER MARKET IN THE WORLD BY 2025 Aggregate private consumption, 2005–2025 billion, $, 2000 2005
2015
2025
746
783
1,521
1,511
370
388
India
Brazil
India
Italy
India
Germany
Per capita $, 2000
334
2,082
584
13,540
1,064
18,429
Rank
12
11
8
7
5
6
Source: Global Insight; UN Population Division; McKinsey Global Institute
7
INDIA'S SHARE-OF-WALLET IS SHIFTING AS INCOMES RISE Necessities Discretionary spending
Share of average household consumption %, thousand, Indian rupees, 2000 82 7
60
100%
4
3
1 2
11 4
2
5
140
248
9
13
6 3
9
Education and recreation
6
Communication
20
Transportation
17 19
14 5
8 3
Health care
12
9 3
6
12
11
Personal products and services
5
3 10
Household products Housing and utilities
56
5
Apparel
25
Food, beverages, and tobacco
42 34
1995
2005E
2015F
2025F
Note: Figures are rounded to the nearest integer and may not add up to 100%. Source: McKinsey Global Institute
8
McKinsey Global Institute
Tapping Into the Indian Consumer Market The India-Europe Investment Forum 28 June 2007
Back-up
10
THE MCKINSEY GLOBAL INSTITUTE (MGI) HAS SPENT THE PAST YEAR EXAMINING THE FUTURE OF THE INDIAN CONSUMER MARKET 400
Proprietary database 1985–2005
300
• Exclusive access to NCAER 300,000
200 100
• •
0 1985
90
95
2000
05
household MISH survey Government NAS, NSS, and RBI data Other sources, e.g., UN, World Bank, Oxford Economics
What makes our work unique?
• Focuses on future consumption
60% 50%
Econometric forecasting model 2006–2025
40% 30% 20% 10% 0% 2006
• Covers 100% of demand
• Includes detailed income distributions
2009
2012
2015
2018
2021
2024
• Integrates macroeconomic scenarios On-the-ground insights from McKinsey experience
11
MGI’s FORECAST ASSUMES 7.3 PERCENT COMPOUND ANNUAL GDP GROWTH Real GDP billion, Indian rupees, 2000
120.000 History
Forecast
100.000 80.000 60.000 40.000 20.000 0 1985
1990
1995
2000
2005
2010
2015
Overall compound annual growth
6.0%
7.3%
Per capita compound annual growth
4.0%
5.9%
Source: McKinsey Global Institute
2020
2025
12
KEY FINDINGS
• Indian incomes will triple over the next two decades, significantly reducing poverty
• India will emerge as the world’s fifth largest consumer economy
• A large urban middle class will develop, but rural areas will benefit too
• Patterns of consumption will shift rapidly towards discretionary spending
• Income and consumption growth will create opportunities and challenges for business and government
13
GROWTH HAS LIFTED 431 MILLION FROM POVERTY AND COULD LIFT 465 MILLION MORE Population in households with annual disposable income less than 90,000 Indian rupees, 2000 millions of people
327
431
702 598
180 465 313
Deprived in 1985
Increase in poverty due to population growth*
Net reduction in poverty
Deprived in 2005
Increase in poverty due to population growth*
* Number added to deprived if poverty remained at 1985 and 2005 rates respectively Source: McKinsey Global Institute
Net reduction in poverty
Deprived in 2025
14
THE SHAPE OF INDIA'S INCOME PYRAMID WILL CHANGE DRAMATICALLY AS INCOMES GROW
2005E
Household income brackets thousand, Indian rupees, 2000
Number of households million
Aggregate disposable income trillion, Indian rupees, 2000
Globals (>1,000)
1.2
2.0
1.2
Strivers (500–1,000)
2.4
1.6
1.0
Seekers (200–500)
10.9
3.1 91.3
Aspirers (90–200)
101.1
2015F
Deprived (<90) Globals (>1,000)
3.3
Strivers (500–1,000)
5.5
Strivers (500–1,000)
74.1
4.1
6.3
4.1 2.7
15.2
11.8
14.6
12.2
3.8
9.5
3.3 21.7
33.1
14.1
20.9 94.9
Aspirers (90–200)
93.1
Source: McKinsey Global Institute
5.4
106.0
Seekers (200–500) Deprived (<90)
8.5
3.8
Aspirers (90–200)
Globals (>1,000)
2.1
11.4
55.1
Seekers (200–500) Deprived (<90)
2025F
Aggregate consumption trillion, Indian rupees, 2000
49.9
16.5
30.6
24.6
13.7 2.6
11.9 2.4 15
THE INCOME DISTRIBUTION IN THE COUNTRY WILL WIDEN AS POVERTY FALLS AND THE MIDDLE CLASS GROWS Distribution of household income % of households 35
1985 1995 2005 2015 2025
30 25 20 15 10 5 0 0
100
-5
Source: McKinsey Global Institute
200
300
400
500
600
700
800
900
1000
Annual household disposable income thousand, Indian rupees, 2000 16
FIRST ASPIRERS AND THEN SEEKERS WILL BECOME THE LARGEST INCOME BRACKETS Household income brackets
Number of households in each income bracket millions of people
140
Actual
thousand, Indian rupees, 2000
Forecast
120 Aspirers (90–200)
100 Seekers (200–500)
80 60 Deprived (<90)
40 Strivers (500–1,000)
20 Globals (>1,000)
0 1985
1990
1995
Source: McKinsey Global Institute
2000
2005
2010
2015
2020
2025
17
KEY FINDINGS
• Indian incomes will triple over the next two decades, significantly reducing poverty
• India will emerge as the world’s fifth largest consumer economy
• A large urban middle class will develop, but rural areas will benefit too
• Patterns of consumption will shift rapidly towards discretionary spending
• Income and consumption growth will create opportunities and challenges for business and government
18
RISING HOUSEHOLD INCOMES WILL BE THE KEY DRIVER OF CONSUMPTION GROWTH NOT CHANGES IN SAVINGS Sources of growth in private consumption 2005–2025 billion, Indian rupees, 2000
69,503 1,922
8,360
42,326
16,896
Private consumption 2005 Contribution to overall consumption growth
Disposable income growth
80%
Growth in number of households
Changes in savings
16%
Note: Figures are rounded to the nearest integer and may not add up to 100%. Source: Oxford Economics; UN; McKinsey Global Institute
Private consumption 2025
4%
19
KEY FINDINGS
• Indian incomes will triple over the next two decades, significantly reducing poverty
• India will emerge as the world’s fifth largest consumer economy
• A large urban middle class will develop, but rural areas will benefit too
• Patterns of consumption will shift rapidly towards discretionary spending
• Income and consumption growth will create opportunities and challenges for business and government
20
URBAN INDIA WILL ACCOUNT FOR MORE THAN TWO-THIRDS OF CONSUMPTION GROWTH OVER THE NEXT 20 YEARS Aggregate annual consumption billion, Indian rupees, 2000 69,502
35,913
62%
16,695 16,896 Urban
43%
Rural
57% All India consumption, 2005
Contribution to consumption growth Source: McKinsey Global Institute
38%
Rural consumption growth
32%
Urban consumption growth
All India consumption, 2025
68%
21
MIDDLE CLASS HOUSEHOLDS WILL DOMINATE URBAN INDIA Household income brackets
Share of urban households by income class %, millions of households 33
100% =
0
1
62
46
0
1
4
0
10
18
114
83 1
2
50
3
4
thousand, Indian rupees, 2000
6
Global (>1,000)
26
Strivers (500–1000)
53
Middle class
66 81
21
1995
Seekers (200–500)
12
Aspirers (90–200)
32
46
1985
51
2005E
9
5
2015F
2025F
Note: Figures are rounded to the nearest integer and may not add up to 100%. Source: McKinsey Global Institute
Deprived (<90)
22
Total disposable income billion, Indian rupees
LARGE CITIES TEND TO HAVE HIGHEST INCOMES, BUT SMALL ‘NICHE’ CITIES PROSPERING TOO Average annual household disposable income, 2001 thousand, Indian rupees, 2000
Tier 1
Tier 2
Tier 3
Niche cities
400 350
Jallandhar Chandigarh Ludhiana
300
Delhi
Faridabad
250
Hyderabad
Amritsar
200 Goa
Coimbatore
Chennai
Pune
Mumbai
Nagpur
150
Kolkata Surat Kanpur Lucknow Jaipur
100 50
Bangalore Ahmedabad
0 0
2
4
6
8
10
Source: The Great Indian Middle Class, NCAER; McKinsey Global Institute
12
14
16 18 20 Estimated population, 2001 million 23
RURAL POVERTY WILL DECLINE SIGNIFICANTLY BY 2025 Share of rural population by income class %, millions
100%
571 1 4
0 0
682 0 1 8
0
790 1 3
0
875 1 6
Household income brackets thousand, Indian rupees, 2000
0
906 1 2
Global (>1,000) Strivers (500–1,000)
20
Seekers (200–500)
48
Aspirers (90–200)
29
Deprived (<90)
Middle class
32 47
96
90 65 46
1985
1995
2005E
2015F
2025F
Note: Figures are rounded to the nearest integer and may not add up to 100%. Source: McKinsey Global Institute
24
PER-HOUSEHOLD CONSUMPTION IN RURAL INDIA WILL REACH TODAY'S URBAN LEVELS BY 2017 Average consumption per household thousand, Indian rupees, 2000
158
116 104
67 45
Urban India, 2005E
1985
Source: McKinsey Global Institute
50
1995
2005E
2015F
2025F
Rural India
25
KEY FINDINGS
• Indian incomes will triple over the next two decades, significantly reducing poverty
• India will emerge as the world’s fifth largest consumer economy
• A large urban middle class will develop, but rural areas will benefit too
• Patterns of consumption will shift rapidly towards discretionary spending
• Income and consumption growth will create opportunities and challenges for business and government
26
FALL IN SHARE OF SPENDING ON NECESSITIES IN INDIA IS COMPARABLE TO SOUTH KOREA'S DURING ITS HIGH-GROWTH PHASE Share of average household spending % South Korea
Necessities* Discretionary spend*
India
100
100 History
75
Forecast
75 Discretionary
50
50
25
25
Apparel Food
0 1981 Per capita income 5,017 $, PPP, 2000
1986
1991
0 1985
12,850
1,173
1995
2005 2,500
2015
2025 7,364
* Necessities include food and apparel; discretionary spending includes all other household spend categories. Source: Euromonitor; India data from McKinsey Global Institute
27
NUMBER OF URBAN HOUSEHOLDS WITH DISCRETIONARY SPENDING POWER TO MULTIPLY TWELVE TIMES Number of urban households with ‘true’ discretionary spending power* million 12x
Household income brackets thousand, Indian rupees, 2000 94 7
Globals (>1,000)
29
Strivers (500–1,000)
49
Middle class
2
3
58
Seekers (200–500)
44 8 1
6 2005E
1 2015F
2025F
* Consumers with sufficient budget to have significant levels of choice-driven spending (beyond categories such as food, housing, health care, education, fuel and transport services) Source: McKinsey Global Institute 28
INDIAN SPENDING PATTERNS WILL BE UNIQUE Share of total consumption, % U.S.
Germany Brazil
South Korea
China
India (2005)
India (2025)
Consumption category In line with benchmarks
• Food beverages and • •
tobacco Apparel Personal products and services
15
21
19
23
35
42
25
4 14
5 10
6 8
4 13
11 4
6 8
5 11
19 5 12
27 7 8
22 9 13
18 4 16
9 6 15
12 3 5
10 3 9
11 1 19
17 1 4
13 4 6
12 2 8
6 7 7
17 2 7
20 6 13
Less than benchmarks
• Housing and utilities • Household products • Education and recreation More than benchmarks
• Transportation • Communication • Health care
Note: Figures are rounded to the nearest integer and may not add up to 100% Source: Euromonitor, MGI China Consumer Demand Model v2.0, McKinsey Global Institute
29
FOOD WILL REMAIN THE LARGEST CONSUMPTION CATEGORY WHILE COMMUNICATIONS WILL GROW THE FASTEST Market size in 2025 trillion, Indian rupees, 2000
2005–2025 compound annual growth rate of aggregate consumption %
16 Communications (4.3)
14
Education and recreation (6.1)
12
Health care (8.9)
10 8 6
Personal products (7.4)
Transport (13.8)
Apparel (3.3)
Household products (1.8)
Food, beverages, and tobacco (17.3)
Housing and utilities (6.6)
4 2 0 0.0
1.0
2.0
3.0
7.0 4.0
8.0 5.0
2005 market size trillion, Indian rupees, 2000 Source: McKinsey Global Institute
30
KEY FINDINGS
• Indian incomes will triple over the next two decades, significantly reducing poverty
• India will emerge as the world’s fifth largest consumer economy
• A large urban middle class will develop, but rural areas will benefit too
• Patterns of consumption will shift rapidly towards discretionary spending
• Income and consumption growth will create opportunities and challenges for business and government
31
OPPORTUNITIES AND CHALLENGES FOR BUSINESSES
Opportunities • Along with China the fastest growing of world’s large consumer markets over next two decades • Major discontinuity, winners have yet to be determined – $1.1 trillion of new market growth not yet owned by anyone • Most accessible market – upper income urbanities – will grow twelve times • Almost half of middle class will be ‘new consumers’ at any point in time – loyalties up for grabs Challenges • Indian companies – Retaining existing customers and market shares – Adapting rapid pace of change – Innovating to capture new growth opportunities – Educating new consumers • Multinationals – Meeting middle class aspirations at Indian price – Adapting products and services to meet Indian needs and task points – Building brands – Overcoming infrastructure, regulatory, and distribution hurdles 32
OPPORTUNITIES AND CHALLENGES FOR GOVERNMENT
Opportunities • A chance to make further significant inroads in poverty reduction • Domestic demand growth will spur further domestic production and employment – particularly in higher value-added industries • An opportunity to attract FDC to serve Indian consumers • The potential to improve the material well-being of hundreds of millions of people Challenges • Long-term growth must be maintained • Infrastructure issues need to be addressed • Regulatory constraints on business need further reform to enable businesses to meet growing demand and improve productivity • Financial system needs reform to efficiently allocate investment, rebalance savings away from households and provide consumer credit • Significant investments in human capital required (education, health care) in fiscally constrained environment
33
INCOME BRACKET CONVERSIONS Household annual disposable income, real 2000
Bracket
Indian rupees
U.S. dollars non-adjusted
Globals
1,000,000 plus
21,882 plus
117,647 plus
Strivers
500,000–1,000,000
10,941–21,882
58,823–117,647
Seekers
200,000–500,000
4,376–10,941
23,529–58,823
Aspirers
90,000–200,000
1,969–4,376
10,588–23,529
Deprived
Less than 90,000
Less than 1,969
Less than 10,588
Source: NCAER “The Great Indian Middle Class”; McKinsey Global Institute
U.S. dollars PPP adjusted
Middle class
34
BACK-UP
• Macroeconomic base case • Urbanization, rural growth and education • Additional results
35
MGI'S BASE-CASE GDP FORECAST IS MIDDLE OF THE RANGE Source
Real per capita GDP growth Compound Annual Growth Rate, %
Timeframe
Planning Commission–High
7.2
2007–2012
HSBC–High
7.2
2005–2015
Goldman Sachs–Base
7.1
2006–2020
HSBC–Base
6.2
2005–2015
Deutsche Bank–High
6.2
2006–2020
5.9
MGI/Oxford Economics–Base
5.7
Planning Commission–Base
2006–2025 2007–2012
EIU
4.7
2005–2025
Global Insight
4.7
2005–2025
PWC
4.3
2005–2050
Deutsche Bank–Base
4.2
2006–2020
Deutsche Bank–Low
2.7
2006–2020
Source: Oxford Economics; India: Pitfalls and Possibilities, HSBC, July 2006; India's rising growth potential, Goldman Sachs, Jan 2007; India Rising: A Medium-Term Perspective, DB Research, May 2005; Towards Faster and More Inclusive Growth: An Approach to the 11th Five Year Plan, Planning Commission, Government of India, June 2006; The World in 2050: How Big will the Major Emerging Market Economies Get and How Can the OECD Compete?, PWC, 2006
36
SERVICES WILL CONTINUE TO BE THE MAIN DRIVER OF GDP GROWTH OVER THE NEXT TWO DECADES Growth by sector Compound annual growth rate, %
Share of GDP %, trillion, Indian rupees, 2000 100% =
8.8
28.3
1985–2005
115.3
2005–2025
9 19 Agriculture
Agriculture
36
2.7
3.1
27 26
Industry
24
Industry
6.4
7.4
65 55 Services
40
1985
Services
2005E
7.8
8.2
2025F
Note: Figures are rounded to the nearest integer and may not add up to 100%. Source: McKinsey Global Institute
37
INCOME GROWTH WILL ACCELERATE WITH ECONOMIC GROWTH
GDP Household disposable income
GDP versus household disposable income growth compound annual growth rate, %, Indian rupees, 2000 7.3 6.3 5.7
5.7
1985–1995
Source: McKinsey Global Institute
7.2
7.4
6.4 6.0
1995–2005E
2005E–2015F
2015F–2025F
38
INDIA'S CONSUMPTION SHARE OF GDP IS CLOSER TO JAPAN AND THE UNITED STATES THAN IT IS TO CHINA %, billion, nominal $, 2005
100% =
Private consumption
Government consumption
Investment
2,216
4,553
801
57
62
18
12
12,456
39 70
14
16
44
Net trade
23
28
1
-2
3 China
Source: Global Insight; McKinsey Global Institute
Japan
India
20 -6 United States 39
INDIA HAS A RELATIVELY HIGH NATIONAL SAVINGS RATE COMPARED WITH OTHER COUNTRIES Gross national savings rates % of nominal GDP, 2005
50.4
Corporations
21,1
32.8
32.4 8,1
26.4
16,2 Households
18.0
22.0
21,3
6.4 Government
21.2
7,3 China*
22.3 7.9
10,2
2.0 South Korea
10,4
India
6.4 -1.3 Japan
2.9 Mexico
7,8
9.9 0.3 France
12.9 11,3
2.1 -0,5 United States
* MGI estimate based on 2005 GDP and estimates of flow-of-funds information. Source: Country National Accounts; IMF; McKinsey Global Institute
40
INDIAN HOUSEHOLD SAVINGS ACCOUNT FOR A DISPROPORTIONATE SHARE OF NATIONAL SAVINGS Household savings as a share of gross national savings rates, 2005 %
69 55 44 37 24 20
India Gross national savings rates % of nominal GDP, 2005
32.4
France
18.0
China*
Mexico
50.4
21.2
16
Japan
South Korea
United States
26.4
32.8
12.9
* MGI estimate based on 2005 GDP and estimates of flow-of-funds information. Source: Country National Accounts; IMF; McKinsey Global Institute
41
INVESTMENT WILL GROW APPROXIMATELY IN LINE WITH GDP Private consumption Investment Government consumption Net trade
Expenditure share of real GDP %
80 History
Forecast
70 60 50 40 30 20 10 0 1985 -10
1990
1995
2000
Source: National Accounts; McKinsey Global Institute
2005
2010
2015
2020
2025
42
GOVERNMENT SPENDING AND DEFICIT WILL GRADUALLY DECLINE AS Expenditures (left scale) A PROPORTION OF GDP Revenues (left scale) Deficit (right scale)
% of GDP Government expenditures and revenues*
40
History
Government budget deficit
3,0
Forecast
2,0
35
1,0 0,0
30
-1,0 -2,0
25
-3,0 -4,0
20
-5,0 15
-6,0 -7,0
10
-8,0 -9,0
5
-10,0 0 1985
1990
1995
2000
2005
2010
2015
2020
-11,0 2025
* Government expenditure figures are available through 2005. Source: McKinsey Global Institute
43
BACK-UP
• Macroeconomic base case • Urbanization, rural growth and education • Additional results
44
INDIA REMAINS LESS URBAN THAN ITS COUNTERPARTS IN ASIA, BUT DEFINITIONS VARY Urban share of total population, 2005 %
81 65
66
69
48 40 27
29
Vietnam India Urban population, 2005 million
23
318
China
Indonesia
530
108
Malaysia Japan
17
84
Source: United Nations World Urbanization Prospects 2005; McKinsey Global Institute
United States
Korea, Rep.
210
39
45
BIRTHS AND MIGRATION WILL DRIVE URBAN POPULATION GROWTH Urban population, 2005–2025* million
523 100 1.6 x
318
Urban population, 2005E Share of total population or urbanization rate
29%
105
Net births
Net migration
Urban population, 2025F 37%
* Estimate of birth versus migration split assumes urban birth rate = 19 per 1,000 and death rate = 6 per 1,000 Source: McKinsey Global Institute
46
CLASSIFICATION OF CITIES AND TOWNS
Mumbai Kolkata, Delhi, Chennai Bangalore Hyderabad Ahemdabad, Pune Surat, Kanpur, Nagpur, Lucknow, Jaipur, Kochi, Vadodara, Indore, Ludhiana, Madurai, Bhopal, Patna, Nasik, Agra, Varanasi, Rajkot, Meerut, Jabalpur, Dhanbad, Kozhikode . . . . Tiruchirapalli, Amritsar, Faridabad, Aurangabad, Allahabad Gwalior, Jodhpur, Raipur, Bhubaneshwar, Goa, Pondicherry Aligarh, Moradabad, Mangalore, Gorakhpur, Bhavnagar…
Rohtak, Rourkela, Udaipur, Anand, Faizabad, Hassan, Shimla, Roorkee, Gurgaon, Shillong…
Tier 1: Major cities 8 cities Population > 4 million Total income >100 billion Indian rupees
Tier 2: Mainstream cities 26 cities Population >1 million
Tier 3: Climbers 33 cities Population >500,000
Tier 4: Small towns 5,094 towns
* Population for each city estimated using the average urban household size (from MGI model) and the estimated number of households in each city from NCAER (in the year 2001). Source: The Great Indian Middle Class, NCAER; McKinsey Global Institute
47
HIGHER INCOME HOUSEHOLDS CONCENTRATED IN LARGE CITIES, POOR IN SMALL TOWNS Proportion of households in each income class across city tiers, 2001 %, thousand, households 100% = 16,809 Tier 1: Major cities
15
Tier 2: Mainstream cities
13
Tier 3: Climbers
9
34,139
3,750
806
470
33 50
55
60
16
9 Tier 4: Small towns
13
9
63
12
8
43
Deprived
Aspirers
10
8
27
25
22
Seekers
Strivers
Globals
Note: Figures are rounded to the nearest integer and may not add up to 100%. Source: The Great Indian Middle Class, NCAER; McKinsey Global Institute
48
RURAL EMPLOYMENT HAS BEEN GRADUALLY SHIFTING AWAY FROM AGRICULTURE Distribution of rural male workers by economic activity % Manufacturing Construction Trade, hotels and restaurants Transport, storage and communication Others*
Agriculture
7 4
5
2
7
75
1987
8 7 8 4 7
67
2004
* Sectors with minimal shift in this period (6% in other services, 1% in mining, quarrying, electricity and water). Note: Figures are rounded to the nearest integer and may not add up to 100%. Source: Employment and unemployment situation in India (2004–05), NSSO; McKinsey Global Institute
49
AGRICULTURAL GROWTH IS FORECAST TO ACCELERATE FROM ITS Compound annual RECENT HISTORICAL RATE growth rate
Agricultural value added in GDP billion, Indian rupees, 2000
9,974 3.1%
7,529 2.4%
5,462
4,299
1995
Source: McKinsey Global Institute
2005E
2015F
2025F
50
ACHIEVEMENT IN HIGHER AND SECONDARY EDUCATION WILL CONTINUE TO BECOME MORE WIDESPREAD
Secondary Higher
% of relevant population groups* Rate of secondary-school and higher-education enrollment
Rate of secondary-school and higher-education attainment
40
40
History Forecast
35
35
30
30
25
25
20
20
15
15
10
10
5
5
0 1985
0 1985
1995
2005
2015
2025
History Forecast
1995
2005
2015
2025
* Enrollment is measured as a percentage of 15 to 24 year old population; attainment is measured relative to 15 and above population. Source: McKinsey Global Institute
51
BACK-UP
• Macroeconomic base case • Urbanization, rural growth and education • Additional results
52
INDIAN CONSUMPTION WILL BE DOMINATED BY THE MIDDLE CLASS Share of total consumption by income bracket %, billion, Indian rupees, 2000
100%
6,679 2 6
0
10,098 1 5 8
16,896
7 6
15 12
34,089
Household income brackets thousand, Indian rupees, 2000 69,503 Globals (>1,000)
12 20 8
32
24
Strivers (500–1,000)
35 Middle class
51 77
24 10 1995
Seekers (200–500)
17
Aspirers (90–200)
36
54
1985
35
2005E
2015F
3
Deprived (<90)
2025F
Note: Figures are rounded to the nearest integer and may not add up to 100%. Source: McKinsey Global Institute
53
HALF OF URBAN CONSUMPTION WILL COME FROM UPPER INCOME STRIVERS AND GLOBALS Share of urban consumption by income class %, trillion, Indian rupees, 2000 2.2 100%
2
6
7.2
4.0
0
17.4
Household income brackets thousand, Indian rupees, 2000 43.1
2
6
12 10
18
8
28
26
Global (>1,000)
33
Strivers (500–1000)
10 17
56 53
Middle class
55
64
37
26
17 7
1985
1995
2005E
2 2015F
4 1 2025F
Note: Figures are rounded to the nearest integer and may not add up to 100%. Source: McKinsey Global Institute
Seekers (200–500) Aspirers (90–200) Deprived (<90)
54
ASPIRERS WILL DRIVE RURAL SPENDING OVER THE NEXT TWO DECADES Share of rural consumption by income class %, trillion, Indian rupees, 2000 4.5 100%
0 6
6.1 2
9
9.7 0
4
7
3
4
9
thousand, Indian rupees, 2000
16.7
26.4
6 6
12
15
17
Household income brackets
47
Global (>1,000)
8
Strivers (500–1,000)
33
Seekers (200–500)
39
Aspirers (90–200)
8
Deprived (<90)
55
84 72
37 18 1985
1995
2005E
2015F
2025F
Note: Figures are rounded to the nearest integer and may not add up to 100%. Source: McKinsey Global Institute
55
CONSUMPTION BY ‘NEW-TO-BRACKET’ CONSUMERS WILL BE SIGNIFICANT, ESPECIALLY IN THE MIDDLE CLASS
‘New-to-bracket’ consumers Existing consumers
‘New-to-bracket’ share of cumulative consumption 2005–2025* %, trillion, Indian rupees, 2000 100% =
78
22
Globals
Strivers
111.5
57
43
93.4 Middle class
Seekers
Aspirers
Deprived
59
41
11
89
262.6
245.8
70.9
* Calculated by determining the number of households that have shifted income class, assume they consume at new bracket levels in the first year, and then consider them ‘new’ to that bracket for three years. Source: McKinsey Global Institute 56
FROM ASPIRER TO STRIVER – THE EVOLUTION OF SPENDING FOR A TYPICAL HOUSEHOLD Average household consumption thousand, Indian rupees, 2000
497
69
Health care
46
Education and recreation
47
Communication
119
Transportation
49 13 42 23
Personal products and services Household products Housing and utilities Apparel
90
Food, beverages, and tobacco
214
22 7
13
48 94 16 11 40
7 7 5
3 1 2
Aspirer 2005E Source: McKinsey Global Institute
18 24
6 12
63 Seeker 2015F
Striver 2025F 57
SHARE-OF-WALLET ON FOOD IS ALREADY LOW IN MIDDLE- AND UPPER-INCOME BRACKETS % Share-of-wallet of urban households in 2005E 100% Food, beverages and tobacco Other spending categories
All India average share-of-wallet evolution 100%
39
21
28
25 61
Aspirers
72
79
Seekers
Strivers
Food, beverages and tobacco
34 42
Share-of-wallet of rural households in 2005E 75
100% Food, beverages and tobacco
Other spending categories
58
42
Deprived Source: McKinsey Global Institute
47
53
Aspirers
35
Other spending categories
66 58
65
Seekers
2005E
2015F
2025F 58
FOOD CONSUMPTION WILL ACCELERATE SIGNIFICANTLY EVEN AS ITS RELATIVE SHARE DECLINES Total consumption of food, beverages, and tobacco* billion, Indian rupees, 2000
Compound annual growth rate
Per-capita consumption of food, beverages, and tobacco* Indian rupees, 2000 17,296
12.102 3.2%
4.5%
9.035 11,547 1.1% 3.0%
6.058
6.454
2005E 2015F 2025F
7,147
5.207
2005E 2015F 2025F
1985
1995
59
56
5,622 3,931
Share of total consumption %
1985
1995
59
56
42
34
25
42
* Approximately 90% of spend on the broad category “food, beverages, and tobacco” is on food. Source: McKinsey Global Institute
34
25
59
FIVE CATEGORIES WILL ACCOUNT FOR MORE THAN 80 PERCENT OF CUMULATIVE CONSUMPTION OVER THE NEXT 20 YEARS Breakdown of total cumulative consumption across categories (2005–2025) trillion, Indian rupees, 2000 784
248
148 87 79 74
148 54 41 32 22
Total growth
Food, Transport beverages, and tobacco
Source: McKinsey Global Institute
Housing and utilities
Health care
Personal products and services
Education and recreation Apparel Communication Household products
Other
60
Tapping Into the Indian Consumer Market The India-Europe Investment Forum 28 June 2007
HOW WILL INDIA’S CONSUMER MARKET EVOLVE IN THE FUTURE? India’s economy has been growing rapidly …
• What impact has growth had on Indian incomes and how quickly will they grow in the future?
• How is the distribution of income changing? When will its middle class take off?
What does this mean for business and investment opportunities?
• How is income growth effecting urban versus rural areas?
• How much of rising Indian incomes will be spent versus saved?
How should companies compete for the “new Indian consumer”?
• What will Indian consumers spend their newfound wealth on?
1
OUR PANEL
• Prashant Desai – Group Head, Investor Relations and New Ventures (PE), Pantaloon Retail (India) Limited
• Richard Fairgrieve – Director of Global Emerging Markets, WestLB Mellon Asset Management
• Dippankar S. Haldar – Chief Executive Officer, Wadhawan Food Retail (P) Limited
• A.P. Parigi – Managing Director and Chief Executive Officer, Entertainment Network (I) Limited
• R. Subramanian – Managing Director, Subhiksha Trading Services
2
KEY FINDINGS FROM McKINSEY GLOBAL INSTITUTE RESEARCH
• Indian incomes will triple over the next two decades, significantly reducing poverty
• India will emerge as the world’s fifth largest consumer economy
• A large urban middle class will develop, but rural areas will benefit too
• Patterns of consumption will shift rapidly towards discretionary spending
• Income and consumption growth will create opportunities and challenges for business and government
3
HOUSEHOLD INCOME GROWTH WILL ACCELERATE ACROSS INDIA Compound annual growth rates 1985–2005
Average household disposable income thousand, Indian rupees, 2000 Actual
500
2005–2025
Forecast
Urban
400 All India
5.8%
300
5.3%
200 4.6%
100
Rural
3.6%
3.6%
2.8%
0 1985
1990
Source: McKinsey Global Institute
1995
2000
2005
2010
2015
2020
2025
4
INDIA WILL SEE CONTINUED REDUCTION IN POVERTY AND GROWTH OF ITS MIDDLE CLASS Share of population in each income bracket %, millions of people
100%
755 1 6
0 0
928 0 2
0
1,107 4 1
18
0
1,278 1 1
Household income brackets thousand, Indian rupees, 2000 1,429 2 9
19
41
Globals (>1,000) Strivers (500–1,000)
32
Seekers (200–500)
36
Aspirers (90–200)
22
Deprived (<90)
Middle class
43 93 80 54 35
1985
1995
2005E
2015F
2025F
Note: Figures are rounded to the nearest integer and may not add up to 100%. Source: McKinsey Global Institute
5
INDIA'S AGGREGATE CONSUMPTION WILL QUADRUPLE OVER THE NEXT 20 YEARS Aggregate consumption across income brackets trillion, Indian rupees, 2000 70
4.1x
34 4 3
10
7 0 5
1
1985
0 0
0 0
14
Globals (>1,000)
16
Strivers (500–1,000) Middle class
25
Seekers (200–500)
Aspirers (90–200)
12
17 1
2
Household income brackets thousand, Indian rupees, 2000
1
9
12
12
5
4
3
2
1995
2005E
2015F
2025F
1
3
Deprived (<90)
Note: Figures are rounded to the nearest integer and may not add up exactly to column totals. Source: McKinsey Global Institute
6
INDIA WILL BECOME THE FIFTH LARGEST CONSUMER MARKET IN THE WORLD BY 2025 Aggregate private consumption, 2005–2025 billion, $, 2000 2005
2015
2025
746
783
1,521
1,511
370
388
India
Brazil
India
Italy
India
Germany
Per capita $, 2000
334
2,082
584
13,540
1,064
18,429
Rank
12
11
8
7
5
6
Source: Global Insight; UN Population Division; McKinsey Global Institute
7
INDIA'S SHARE-OF-WALLET IS SHIFTING AS INCOMES RISE Necessities Discretionary spending
Share of average household consumption %, thousand, Indian rupees, 2000 82 7
60
100%
4
3
1 2
11 4
2
5
140
248
9
13
6 3
9
Education and recreation
6
Communication
20
Transportation
17 19
14 5
8 3
Health care
12
9 3
6
12
11
Personal products and services
5
3 10
Household products Housing and utilities
56
5
Apparel
25
Food, beverages, and tobacco
42 34
1995
2005E
2015F
2025F
Note: Figures are rounded to the nearest integer and may not add up to 100%. Source: McKinsey Global Institute
8
McKinsey Global Institute
Tapping Into the Indian Consumer Market The India-Europe Investment Forum 28 June 2007
Back-up
10
THE MCKINSEY GLOBAL INSTITUTE (MGI) HAS SPENT THE PAST YEAR EXAMINING THE FUTURE OF THE INDIAN CONSUMER MARKET 400
Proprietary database 1985–2005
300
• Exclusive access to NCAER 300,000
200 100
• •
0 1985
90
95
2000
05
household MISH survey Government NAS, NSS, and RBI data Other sources, e.g., UN, World Bank, Oxford Economics
What makes our work unique?
• Focuses on future consumption
60% 50%
Econometric forecasting model 2006–2025
40% 30% 20% 10% 0% 2006
• Covers 100% of demand
• Includes detailed income distributions
2009
2012
2015
2018
2021
2024
• Integrates macroeconomic scenarios On-the-ground insights from McKinsey experience
11
MGI’s FORECAST ASSUMES 7.3 PERCENT COMPOUND ANNUAL GDP GROWTH Real GDP billion, Indian rupees, 2000
120.000 History
Forecast
100.000 80.000 60.000 40.000 20.000 0 1985
1990
1995
2000
2005
2010
2015
Overall compound annual growth
6.0%
7.3%
Per capita compound annual growth
4.0%
5.9%
Source: McKinsey Global Institute
2020
2025
12
KEY FINDINGS
• Indian incomes will triple over the next two decades, significantly reducing poverty
• India will emerge as the world’s fifth largest consumer economy
• A large urban middle class will develop, but rural areas will benefit too
• Patterns of consumption will shift rapidly towards discretionary spending
• Income and consumption growth will create opportunities and challenges for business and government
13
GROWTH HAS LIFTED 431 MILLION FROM POVERTY AND COULD LIFT 465 MILLION MORE Population in households with annual disposable income less than 90,000 Indian rupees, 2000 millions of people
327
431
702 598
180 465 313
Deprived in 1985
Increase in poverty due to population growth*
Net reduction in poverty
Deprived in 2005
Increase in poverty due to population growth*
* Number added to deprived if poverty remained at 1985 and 2005 rates respectively Source: McKinsey Global Institute
Net reduction in poverty
Deprived in 2025
14
THE SHAPE OF INDIA'S INCOME PYRAMID WILL CHANGE DRAMATICALLY AS INCOMES GROW
2005E
Household income brackets thousand, Indian rupees, 2000
Number of households million
Aggregate disposable income trillion, Indian rupees, 2000
Globals (>1,000)
1.2
2.0
1.2
Strivers (500–1,000)
2.4
1.6
1.0
Seekers (200–500)
10.9
3.1 91.3
Aspirers (90–200)
101.1
2015F
Deprived (<90) Globals (>1,000)
3.3
Strivers (500–1,000)
5.5
Strivers (500–1,000)
74.1
4.1
6.3
4.1 2.7
15.2
11.8
14.6
12.2
3.8
9.5
3.3 21.7
33.1
14.1
20.9 94.9
Aspirers (90–200)
93.1
Source: McKinsey Global Institute
5.4
106.0
Seekers (200–500) Deprived (<90)
8.5
3.8
Aspirers (90–200)
Globals (>1,000)
2.1
11.4
55.1
Seekers (200–500) Deprived (<90)
2025F
Aggregate consumption trillion, Indian rupees, 2000
49.9
16.5
30.6
24.6
13.7 2.6
11.9 2.4 15
THE INCOME DISTRIBUTION IN THE COUNTRY WILL WIDEN AS POVERTY FALLS AND THE MIDDLE CLASS GROWS Distribution of household income % of households 35
1985 1995 2005 2015 2025
30 25 20 15 10 5 0 0
100
-5
Source: McKinsey Global Institute
200
300
400
500
600
700
800
900
1000
Annual household disposable income thousand, Indian rupees, 2000 16
FIRST ASPIRERS AND THEN SEEKERS WILL BECOME THE LARGEST INCOME BRACKETS Household income brackets
Number of households in each income bracket millions of people
140
Actual
thousand, Indian rupees, 2000
Forecast
120 Aspirers (90–200)
100 Seekers (200–500)
80 60 Deprived (<90)
40 Strivers (500–1,000)
20 Globals (>1,000)
0 1985
1990
1995
Source: McKinsey Global Institute
2000
2005
2010
2015
2020
2025
17
KEY FINDINGS
• Indian incomes will triple over the next two decades, significantly reducing poverty
• India will emerge as the world’s fifth largest consumer economy
• A large urban middle class will develop, but rural areas will benefit too
• Patterns of consumption will shift rapidly towards discretionary spending
• Income and consumption growth will create opportunities and challenges for business and government
18
RISING HOUSEHOLD INCOMES WILL BE THE KEY DRIVER OF CONSUMPTION GROWTH NOT CHANGES IN SAVINGS Sources of growth in private consumption 2005–2025 billion, Indian rupees, 2000
69,503 1,922
8,360
42,326
16,896
Private consumption 2005 Contribution to overall consumption growth
Disposable income growth
80%
Growth in number of households
Changes in savings
16%
Note: Figures are rounded to the nearest integer and may not add up to 100%. Source: Oxford Economics; UN; McKinsey Global Institute
Private consumption 2025
4%
19
KEY FINDINGS
• Indian incomes will triple over the next two decades, significantly reducing poverty
• India will emerge as the world’s fifth largest consumer economy
• A large urban middle class will develop, but rural areas will benefit too
• Patterns of consumption will shift rapidly towards discretionary spending
• Income and consumption growth will create opportunities and challenges for business and government
20
URBAN INDIA WILL ACCOUNT FOR MORE THAN TWO-THIRDS OF CONSUMPTION GROWTH OVER THE NEXT 20 YEARS Aggregate annual consumption billion, Indian rupees, 2000 69,502
35,913
62%
16,695 16,896 Urban
43%
Rural
57% All India consumption, 2005
Contribution to consumption growth Source: McKinsey Global Institute
38%
Rural consumption growth
32%
Urban consumption growth
All India consumption, 2025
68%
21
MIDDLE CLASS HOUSEHOLDS WILL DOMINATE URBAN INDIA Household income brackets
Share of urban households by income class %, millions of households 33
100% =
0
1
62
46
0
1
4
0
10
18
114
83 1
2
50
3
4
thousand, Indian rupees, 2000
6
Global (>1,000)
26
Strivers (500–1000)
53
Middle class
66 81
21
1995
Seekers (200–500)
12
Aspirers (90–200)
32
46
1985
51
2005E
9
5
2015F
2025F
Note: Figures are rounded to the nearest integer and may not add up to 100%. Source: McKinsey Global Institute
Deprived (<90)
22
Total disposable income billion, Indian rupees
LARGE CITIES TEND TO HAVE HIGHEST INCOMES, BUT SMALL ‘NICHE’ CITIES PROSPERING TOO Average annual household disposable income, 2001 thousand, Indian rupees, 2000
Tier 1
Tier 2
Tier 3
Niche cities
400 350
Jallandhar Chandigarh Ludhiana
300
Delhi
Faridabad
250
Hyderabad
Amritsar
200 Goa
Coimbatore
Chennai
Pune
Mumbai
Nagpur
150
Kolkata Surat Kanpur Lucknow Jaipur
100 50
Bangalore Ahmedabad
0 0
2
4
6
8
10
Source: The Great Indian Middle Class, NCAER; McKinsey Global Institute
12
14
16 18 20 Estimated population, 2001 million 23
RURAL POVERTY WILL DECLINE SIGNIFICANTLY BY 2025 Share of rural population by income class %, millions
100%
571 1 4
0 0
682 0 1 8
0
790 1 3
0
875 1 6
Household income brackets thousand, Indian rupees, 2000
0
906 1 2
Global (>1,000) Strivers (500–1,000)
20
Seekers (200–500)
48
Aspirers (90–200)
29
Deprived (<90)
Middle class
32 47
96
90 65 46
1985
1995
2005E
2015F
2025F
Note: Figures are rounded to the nearest integer and may not add up to 100%. Source: McKinsey Global Institute
24
PER-HOUSEHOLD CONSUMPTION IN RURAL INDIA WILL REACH TODAY'S URBAN LEVELS BY 2017 Average consumption per household thousand, Indian rupees, 2000
158
116 104
67 45
Urban India, 2005E
1985
Source: McKinsey Global Institute
50
1995
2005E
2015F
2025F
Rural India
25
KEY FINDINGS
• Indian incomes will triple over the next two decades, significantly reducing poverty
• India will emerge as the world’s fifth largest consumer economy
• A large urban middle class will develop, but rural areas will benefit too
• Patterns of consumption will shift rapidly towards discretionary spending
• Income and consumption growth will create opportunities and challenges for business and government
26
FALL IN SHARE OF SPENDING ON NECESSITIES IN INDIA IS COMPARABLE TO SOUTH KOREA'S DURING ITS HIGH-GROWTH PHASE Share of average household spending % South Korea
Necessities* Discretionary spend*
India
100
100 History
75
Forecast
75 Discretionary
50
50
25
25
Apparel Food
0 1981 Per capita income 5,017 $, PPP, 2000
1986
1991
0 1985
12,850
1,173
1995
2005 2,500
2015
2025 7,364
* Necessities include food and apparel; discretionary spending includes all other household spend categories. Source: Euromonitor; India data from McKinsey Global Institute
27
NUMBER OF URBAN HOUSEHOLDS WITH DISCRETIONARY SPENDING POWER TO MULTIPLY TWELVE TIMES Number of urban households with ‘true’ discretionary spending power* million 12x
Household income brackets thousand, Indian rupees, 2000 94 7
Globals (>1,000)
29
Strivers (500–1,000)
49
Middle class
2
3
58
Seekers (200–500)
44 8 1
6 2005E
1 2015F
2025F
* Consumers with sufficient budget to have significant levels of choice-driven spending (beyond categories such as food, housing, health care, education, fuel and transport services) Source: McKinsey Global Institute 28
INDIAN SPENDING PATTERNS WILL BE UNIQUE Share of total consumption, % U.S.
Germany Brazil
South Korea
China
India (2005)
India (2025)
Consumption category In line with benchmarks
• Food beverages and • •
tobacco Apparel Personal products and services
15
21
19
23
35
42
25
4 14
5 10
6 8
4 13
11 4
6 8
5 11
19 5 12
27 7 8
22 9 13
18 4 16
9 6 15
12 3 5
10 3 9
11 1 19
17 1 4
13 4 6
12 2 8
6 7 7
17 2 7
20 6 13
Less than benchmarks
• Housing and utilities • Household products • Education and recreation More than benchmarks
• Transportation • Communication • Health care
Note: Figures are rounded to the nearest integer and may not add up to 100% Source: Euromonitor, MGI China Consumer Demand Model v2.0, McKinsey Global Institute
29
FOOD WILL REMAIN THE LARGEST CONSUMPTION CATEGORY WHILE COMMUNICATIONS WILL GROW THE FASTEST Market size in 2025 trillion, Indian rupees, 2000
2005–2025 compound annual growth rate of aggregate consumption %
16 Communications (4.3)
14
Education and recreation (6.1)
12
Health care (8.9)
10 8 6
Personal products (7.4)
Transport (13.8)
Apparel (3.3)
Household products (1.8)
Food, beverages, and tobacco (17.3)
Housing and utilities (6.6)
4 2 0 0.0
1.0
2.0
3.0
7.0 4.0
8.0 5.0
2005 market size trillion, Indian rupees, 2000 Source: McKinsey Global Institute
30
KEY FINDINGS
• Indian incomes will triple over the next two decades, significantly reducing poverty
• India will emerge as the world’s fifth largest consumer economy
• A large urban middle class will develop, but rural areas will benefit too
• Patterns of consumption will shift rapidly towards discretionary spending
• Income and consumption growth will create opportunities and challenges for business and government
31
OPPORTUNITIES AND CHALLENGES FOR BUSINESSES
Opportunities • Along with China the fastest growing of world’s large consumer markets over next two decades • Major discontinuity, winners have yet to be determined – $1.1 trillion of new market growth not yet owned by anyone • Most accessible market – upper income urbanities – will grow twelve times • Almost half of middle class will be ‘new consumers’ at any point in time – loyalties up for grabs Challenges • Indian companies – Retaining existing customers and market shares – Adapting rapid pace of change – Innovating to capture new growth opportunities – Educating new consumers • Multinationals – Meeting middle class aspirations at Indian price – Adapting products and services to meet Indian needs and task points – Building brands – Overcoming infrastructure, regulatory, and distribution hurdles 32
OPPORTUNITIES AND CHALLENGES FOR GOVERNMENT
Opportunities • A chance to make further significant inroads in poverty reduction • Domestic demand growth will spur further domestic production and employment – particularly in higher value-added industries • An opportunity to attract FDC to serve Indian consumers • The potential to improve the material well-being of hundreds of millions of people Challenges • Long-term growth must be maintained • Infrastructure issues need to be addressed • Regulatory constraints on business need further reform to enable businesses to meet growing demand and improve productivity • Financial system needs reform to efficiently allocate investment, rebalance savings away from households and provide consumer credit • Significant investments in human capital required (education, health care) in fiscally constrained environment
33
INCOME BRACKET CONVERSIONS Household annual disposable income, real 2000
Bracket
Indian rupees
U.S. dollars non-adjusted
Globals
1,000,000 plus
21,882 plus
117,647 plus
Strivers
500,000–1,000,000
10,941–21,882
58,823–117,647
Seekers
200,000–500,000
4,376–10,941
23,529–58,823
Aspirers
90,000–200,000
1,969–4,376
10,588–23,529
Deprived
Less than 90,000
Less than 1,969
Less than 10,588
Source: NCAER “The Great Indian Middle Class”; McKinsey Global Institute
U.S. dollars PPP adjusted
Middle class
34
BACK-UP
• Macroeconomic base case • Urbanization, rural growth and education • Additional results
35
MGI'S BASE-CASE GDP FORECAST IS MIDDLE OF THE RANGE Source
Real per capita GDP growth Compound Annual Growth Rate, %
Timeframe
Planning Commission–High
7.2
2007–2012
HSBC–High
7.2
2005–2015
Goldman Sachs–Base
7.1
2006–2020
HSBC–Base
6.2
2005–2015
Deutsche Bank–High
6.2
2006–2020
5.9
MGI/Oxford Economics–Base
5.7
Planning Commission–Base
2006–2025 2007–2012
EIU
4.7
2005–2025
Global Insight
4.7
2005–2025
PWC
4.3
2005–2050
Deutsche Bank–Base
4.2
2006–2020
Deutsche Bank–Low
2.7
2006–2020
Source: Oxford Economics; India: Pitfalls and Possibilities, HSBC, July 2006; India's rising growth potential, Goldman Sachs, Jan 2007; India Rising: A Medium-Term Perspective, DB Research, May 2005; Towards Faster and More Inclusive Growth: An Approach to the 11th Five Year Plan, Planning Commission, Government of India, June 2006; The World in 2050: How Big will the Major Emerging Market Economies Get and How Can the OECD Compete?, PWC, 2006
36
SERVICES WILL CONTINUE TO BE THE MAIN DRIVER OF GDP GROWTH OVER THE NEXT TWO DECADES Growth by sector Compound annual growth rate, %
Share of GDP %, trillion, Indian rupees, 2000 100% =
8.8
28.3
1985–2005
115.3
2005–2025
9 19 Agriculture
Agriculture
36
2.7
3.1
27 26
Industry
24
Industry
6.4
7.4
65 55 Services
40
1985
Services
2005E
7.8
8.2
2025F
Note: Figures are rounded to the nearest integer and may not add up to 100%. Source: McKinsey Global Institute
37
INCOME GROWTH WILL ACCELERATE WITH ECONOMIC GROWTH
GDP Household disposable income
GDP versus household disposable income growth compound annual growth rate, %, Indian rupees, 2000 7.3 6.3 5.7
5.7
1985–1995
Source: McKinsey Global Institute
7.2
7.4
6.4 6.0
1995–2005E
2005E–2015F
2015F–2025F
38
INDIA'S CONSUMPTION SHARE OF GDP IS CLOSER TO JAPAN AND THE UNITED STATES THAN IT IS TO CHINA %, billion, nominal $, 2005
100% =
Private consumption
Government consumption
Investment
2,216
4,553
801
57
62
18
12
12,456
39 70
14
16
44
Net trade
23
28
1
-2
3 China
Source: Global Insight; McKinsey Global Institute
Japan
India
20 -6 United States 39
INDIA HAS A RELATIVELY HIGH NATIONAL SAVINGS RATE COMPARED WITH OTHER COUNTRIES Gross national savings rates % of nominal GDP, 2005
50.4
Corporations
21,1
32.8
32.4 8,1
26.4
16,2 Households
18.0
22.0
21,3
6.4 Government
21.2
7,3 China*
22.3 7.9
10,2
2.0 South Korea
10,4
India
6.4 -1.3 Japan
2.9 Mexico
7,8
9.9 0.3 France
12.9 11,3
2.1 -0,5 United States
* MGI estimate based on 2005 GDP and estimates of flow-of-funds information. Source: Country National Accounts; IMF; McKinsey Global Institute
40
INDIAN HOUSEHOLD SAVINGS ACCOUNT FOR A DISPROPORTIONATE SHARE OF NATIONAL SAVINGS Household savings as a share of gross national savings rates, 2005 %
69 55 44 37 24 20
India Gross national savings rates % of nominal GDP, 2005
32.4
France
18.0
China*
Mexico
50.4
21.2
16
Japan
South Korea
United States
26.4
32.8
12.9
* MGI estimate based on 2005 GDP and estimates of flow-of-funds information. Source: Country National Accounts; IMF; McKinsey Global Institute
41
INVESTMENT WILL GROW APPROXIMATELY IN LINE WITH GDP Private consumption Investment Government consumption Net trade
Expenditure share of real GDP %
80 History
Forecast
70 60 50 40 30 20 10 0 1985 -10
1990
1995
2000
Source: National Accounts; McKinsey Global Institute
2005
2010
2015
2020
2025
42
GOVERNMENT SPENDING AND DEFICIT WILL GRADUALLY DECLINE AS Expenditures (left scale) A PROPORTION OF GDP Revenues (left scale) Deficit (right scale)
% of GDP Government expenditures and revenues*
40
History
Government budget deficit
3,0
Forecast
2,0
35
1,0 0,0
30
-1,0 -2,0
25
-3,0 -4,0
20
-5,0 15
-6,0 -7,0
10
-8,0 -9,0
5
-10,0 0 1985
1990
1995
2000
2005
2010
2015
2020
-11,0 2025
* Government expenditure figures are available through 2005. Source: McKinsey Global Institute
43
BACK-UP
• Macroeconomic base case • Urbanization, rural growth and education • Additional results
44
INDIA REMAINS LESS URBAN THAN ITS COUNTERPARTS IN ASIA, BUT DEFINITIONS VARY Urban share of total population, 2005 %
81 65
66
69
48 40 27
29
Vietnam India Urban population, 2005 million
23
318
China
Indonesia
530
108
Malaysia Japan
17
84
Source: United Nations World Urbanization Prospects 2005; McKinsey Global Institute
United States
Korea, Rep.
210
39
45
BIRTHS AND MIGRATION WILL DRIVE URBAN POPULATION GROWTH Urban population, 2005–2025* million
523 100 1.6 x
318
Urban population, 2005E Share of total population or urbanization rate
29%
105
Net births
Net migration
Urban population, 2025F 37%
* Estimate of birth versus migration split assumes urban birth rate = 19 per 1,000 and death rate = 6 per 1,000 Source: McKinsey Global Institute
46
CLASSIFICATION OF CITIES AND TOWNS
Mumbai Kolkata, Delhi, Chennai Bangalore Hyderabad Ahemdabad, Pune Surat, Kanpur, Nagpur, Lucknow, Jaipur, Kochi, Vadodara, Indore, Ludhiana, Madurai, Bhopal, Patna, Nasik, Agra, Varanasi, Rajkot, Meerut, Jabalpur, Dhanbad, Kozhikode . . . . Tiruchirapalli, Amritsar, Faridabad, Aurangabad, Allahabad Gwalior, Jodhpur, Raipur, Bhubaneshwar, Goa, Pondicherry Aligarh, Moradabad, Mangalore, Gorakhpur, Bhavnagar…
Rohtak, Rourkela, Udaipur, Anand, Faizabad, Hassan, Shimla, Roorkee, Gurgaon, Shillong…
Tier 1: Major cities 8 cities Population > 4 million Total income >100 billion Indian rupees
Tier 2: Mainstream cities 26 cities Population >1 million
Tier 3: Climbers 33 cities Population >500,000
Tier 4: Small towns 5,094 towns
* Population for each city estimated using the average urban household size (from MGI model) and the estimated number of households in each city from NCAER (in the year 2001). Source: The Great Indian Middle Class, NCAER; McKinsey Global Institute
47
HIGHER INCOME HOUSEHOLDS CONCENTRATED IN LARGE CITIES, POOR IN SMALL TOWNS Proportion of households in each income class across city tiers, 2001 %, thousand, households 100% = 16,809 Tier 1: Major cities
15
Tier 2: Mainstream cities
13
Tier 3: Climbers
9
34,139
3,750
806
470
33 50
55
60
16
9 Tier 4: Small towns
13
9
63
12
8
43
Deprived
Aspirers
10
8
27
25
22
Seekers
Strivers
Globals
Note: Figures are rounded to the nearest integer and may not add up to 100%. Source: The Great Indian Middle Class, NCAER; McKinsey Global Institute
48
RURAL EMPLOYMENT HAS BEEN GRADUALLY SHIFTING AWAY FROM AGRICULTURE Distribution of rural male workers by economic activity % Manufacturing Construction Trade, hotels and restaurants Transport, storage and communication Others*
Agriculture
7 4
5
2
7
75
1987
8 7 8 4 7
67
2004
* Sectors with minimal shift in this period (6% in other services, 1% in mining, quarrying, electricity and water). Note: Figures are rounded to the nearest integer and may not add up to 100%. Source: Employment and unemployment situation in India (2004–05), NSSO; McKinsey Global Institute
49
AGRICULTURAL GROWTH IS FORECAST TO ACCELERATE FROM ITS Compound annual RECENT HISTORICAL RATE growth rate
Agricultural value added in GDP billion, Indian rupees, 2000
9,974 3.1%
7,529 2.4%
5,462
4,299
1995
Source: McKinsey Global Institute
2005E
2015F
2025F
50
ACHIEVEMENT IN HIGHER AND SECONDARY EDUCATION WILL CONTINUE TO BECOME MORE WIDESPREAD
Secondary Higher
% of relevant population groups* Rate of secondary-school and higher-education enrollment
Rate of secondary-school and higher-education attainment
40
40
History Forecast
35
35
30
30
25
25
20
20
15
15
10
10
5
5
0 1985
0 1985
1995
2005
2015
2025
History Forecast
1995
2005
2015
2025
* Enrollment is measured as a percentage of 15 to 24 year old population; attainment is measured relative to 15 and above population. Source: McKinsey Global Institute
51
BACK-UP
• Macroeconomic base case • Urbanization, rural growth and education • Additional results
52
INDIAN CONSUMPTION WILL BE DOMINATED BY THE MIDDLE CLASS Share of total consumption by income bracket %, billion, Indian rupees, 2000
100%
6,679 2 6
0
10,098 1 5 8
16,896
7 6
15 12
34,089
Household income brackets thousand, Indian rupees, 2000 69,503 Globals (>1,000)
12 20 8
32
24
Strivers (500–1,000)
35 Middle class
51 77
24 10 1995
Seekers (200–500)
17
Aspirers (90–200)
36
54
1985
35
2005E
2015F
3
Deprived (<90)
2025F
Note: Figures are rounded to the nearest integer and may not add up to 100%. Source: McKinsey Global Institute
53
HALF OF URBAN CONSUMPTION WILL COME FROM UPPER INCOME STRIVERS AND GLOBALS Share of urban consumption by income class %, trillion, Indian rupees, 2000 2.2 100%
2
6
7.2
4.0
0
17.4
Household income brackets thousand, Indian rupees, 2000 43.1
2
6
12 10
18
8
28
26
Global (>1,000)
33
Strivers (500–1000)
10 17
56 53
Middle class
55
64
37
26
17 7
1985
1995
2005E
2 2015F
4 1 2025F
Note: Figures are rounded to the nearest integer and may not add up to 100%. Source: McKinsey Global Institute
Seekers (200–500) Aspirers (90–200) Deprived (<90)
54
ASPIRERS WILL DRIVE RURAL SPENDING OVER THE NEXT TWO DECADES Share of rural consumption by income class %, trillion, Indian rupees, 2000 4.5 100%
0 6
6.1 2
9
9.7 0
4
7
3
4
9
thousand, Indian rupees, 2000
16.7
26.4
6 6
12
15
17
Household income brackets
47
Global (>1,000)
8
Strivers (500–1,000)
33
Seekers (200–500)
39
Aspirers (90–200)
8
Deprived (<90)
55
84 72
37 18 1985
1995
2005E
2015F
2025F
Note: Figures are rounded to the nearest integer and may not add up to 100%. Source: McKinsey Global Institute
55
CONSUMPTION BY ‘NEW-TO-BRACKET’ CONSUMERS WILL BE SIGNIFICANT, ESPECIALLY IN THE MIDDLE CLASS
‘New-to-bracket’ consumers Existing consumers
‘New-to-bracket’ share of cumulative consumption 2005–2025* %, trillion, Indian rupees, 2000 100% =
78
22
Globals
Strivers
111.5
57
43
93.4 Middle class
Seekers
Aspirers
Deprived
59
41
11
89
262.6
245.8
70.9
* Calculated by determining the number of households that have shifted income class, assume they consume at new bracket levels in the first year, and then consider them ‘new’ to that bracket for three years. Source: McKinsey Global Institute 56
FROM ASPIRER TO STRIVER – THE EVOLUTION OF SPENDING FOR A TYPICAL HOUSEHOLD Average household consumption thousand, Indian rupees, 2000
497
69
Health care
46
Education and recreation
47
Communication
119
Transportation
49 13 42 23
Personal products and services Household products Housing and utilities Apparel
90
Food, beverages, and tobacco
214
22 7
13
48 94 16 11 40
7 7 5
3 1 2
Aspirer 2005E Source: McKinsey Global Institute
18 24
6 12
63 Seeker 2015F
Striver 2025F 57
SHARE-OF-WALLET ON FOOD IS ALREADY LOW IN MIDDLE- AND UPPER-INCOME BRACKETS % Share-of-wallet of urban households in 2005E 100% Food, beverages and tobacco Other spending categories
All India average share-of-wallet evolution 100%
39
21
28
25 61
Aspirers
72
79
Seekers
Strivers
Food, beverages and tobacco
34 42
Share-of-wallet of rural households in 2005E 75
100% Food, beverages and tobacco
Other spending categories
58
42
Deprived Source: McKinsey Global Institute
47
53
Aspirers
35
Other spending categories
66 58
65
Seekers
2005E
2015F
2025F 58
FOOD CONSUMPTION WILL ACCELERATE SIGNIFICANTLY EVEN AS ITS RELATIVE SHARE DECLINES Total consumption of food, beverages, and tobacco* billion, Indian rupees, 2000
Compound annual growth rate
Per-capita consumption of food, beverages, and tobacco* Indian rupees, 2000 17,296
12.102 3.2%
4.5%
9.035 11,547 1.1% 3.0%
6.058
6.454
2005E 2015F 2025F
7,147
5.207
2005E 2015F 2025F
1985
1995
59
56
5,622 3,931
Share of total consumption %
1985
1995
59
56
42
34
25
42
* Approximately 90% of spend on the broad category “food, beverages, and tobacco” is on food. Source: McKinsey Global Institute
34
25
59
FIVE CATEGORIES WILL ACCOUNT FOR MORE THAN 80 PERCENT OF CUMULATIVE CONSUMPTION OVER THE NEXT 20 YEARS Breakdown of total cumulative consumption across categories (2005–2025) trillion, Indian rupees, 2000 784
248
148 87 79 74
148 54 41 32 22
Total growth
Food, Transport beverages, and tobacco
Source: McKinsey Global Institute
Housing and utilities
Health care
Personal products and services
Education and recreation Apparel Communication Household products
Other
60
Related Documents
Mckinsey - The India Consumer Story
August 2019 14
The India Growth Story
December 2019 17
Consumer Markets In India
November 2019 30
Mckinsey A Consumer Paradigm For China
May 2020 8
The Mckinsey Quarterly: The Online Journal Of Mckinsey &
December 2019 6