Thought this might be of interest to some. Remember when the Indians were talking about a population explosion? :)

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Source
- http://www.economist.com/daily/news/displaystory.cfm?story_id=9135582&top_story=1

India's consumers
The coming boom
May 3rd 2007 | DELHI
From The Economist print edition

India's consumption could leapfrog Germany's in two decades

IN CASE any potential investor has missed India's run of 8% growth and billion-person potential, the consultants at McKinsey have provided a useful jab in the ribs. In a report on India's consumer market published on May 3rd, they have added detail to the probable economic explosion ahead. Assuming annual growth averages 7.3% over two decades—a reasonable bet—India may overtake Germany as the world's fifth-biggest consumer market by 2025. It predicts the middle class will expand from 50m to 583m, leaving only a fifth of Indians in the bottom household-income bracket, earning less than 90,000 rupees ($2,200) a year (see chart).

All sorts of businesses will profit. But the report, “The Bird of Gold: the Rise of India's Consumer Market”, suggests where the opportunities will be greatest. First, among the relatively rich. For now, the poor and lower-middle class together account for 75% of total spending. By 2025, McKinsey predicts consumption will be dominated by the middle class, to the tune of 59%, and the rich, accounting for 20%. Second, in the cities. It expects consumption in urban areas to rise from 43% of the total now to 62% by 2025—even though most Indians will still be rural.

Third, as spending on discretionary items increases, some markets will balloon faster than others. While the share of Indians' spending devoted to food, drink and tobacco will fall from 42% to 25% by 2025, health-care spending will rise from 4% to 13%.

If McKinsey's growth prediction looks reasonable, others look optimistic. For example, the report notes that spending on education and infrastructure will have to increase to support its analysis. Yet it is still hard to imagine so many hundreds of millions of Indians being educated to a standard befitting middle-income status. Transforming the thousands of rotten schools might prove impossible, even if sufficient money can be found. Given India's relatively weak fiscal position, it perhaps cannot be.

If the golden bird is to be a phoenix, and not a chicken, predictions such as these should spur the government to act on such problems. Suman Bery, director of the National Council of Applied Economic Research, a think-tank, lends a word of caution: “We've had super-fast growth only for the last four years. We can still throw it away.”

Balbhadra - Phew! At least it is in quotes this time :)

Thopa - Sure politicians and economists have a role in it all, but so does everyone else including businesses and ordinary people. I think that's where you will see the initiative and the action IMHO.

Loots - Very interesting. I guess having a better agricutural growth rate plays its part but I dont see it as the primary driver in brining people out of poverty. If you look at most major economic advances post the industrial revolution, including what is going on in China today, a lot of upward mobility has been about bringing people out of lower paying agricultural sector into the relatively higher paying manufacturing, construction and the services sectors.

Also, that 90% agriculture employment number has declined in the decades since it was that high. The numbers I have before me are more on the lines of 60% employement in agriculture (with roughly 30 % in services and 10% in industry - not sure which bucket they put construction in).

In spite of employment being skewed such, in terms of GDP services are a staggering 60% and agriculture and industry 20% each. In light of that, the game plan should be, and I think is in the mind of many planners, to increase the opportunities for people so that they can move to the higher paying sectors like services, construction and manufacuring. That is not to say agriculture can or should be ignored but agricultural growth is unlikely to be what lifts millions out of poverty. The focus in my opinion should be to wean as many people away from agriculture as possible by providing them the opportunities and acces that will help them succeed in the other sectors (namely education).

It wasn't agriculture that has brought India this far, except perhaps for a brief period during the green revolution days, and it appears it will continue to be the services and industry sectors that will drive the economy forward.That is where the future of India's masses lies IMHO.

Also, to points raised by some of the other posters, depending on which figure you look at, India's poverty rate is around 20% according to some. Others but it at 30-something. I forgot who said it but India is a rich country inhabited by the poor. Just like China was and still is to an extent today.

Lopsided development is a concern, but if you exculude the BIMAROO states( Bihar, Madhya Pradesh, Rajastan, Orissa, and now Chattisgarh and Jharkhand) - there is a mixed - almost decent - economic picture in India. Take the example of Tamil Nadu where close to half the population is urban. South India has become a great place to do business and has been attracting foreign investment and indusrty at a very impressive rate and in the process has seen some of the biggest GSP (gross state product) jumps in the country.

Where India does suffer, according to many reports, is in personal productivity. I expect that will change with time and I have already seen it in my own work as Indian employees connect with rest of the world, especially the western world, learn it's ways, and learn the things that they need to do to get more US and European business namely be more productive.

In terms of the big picture, I think the key for India is to focus on better human resource development and continue to see grow in all sectors of the economy with tthe focus on that sector where it has the most cometetive advantage against others: low cost services. At least that's where the medium term focus should be.

Just my thoughts.

Be ware! All that glitters is not Gold.
Let's probe under the projected layers of data, and test its accuracy & consistency. Does it faithfully convey the ground realities?
Montek Singh Ahluwalia, too, doubts the validity of data which is being supplied to his Apex Planning body.
There is a boom in consumer-goods industry only, and the same is supported by bank-loans--not with real savings.
Of course, there is investment in buildings and roads--funded either by the Government or through bank-loans (e.g. housing loans) or, in rare cases, financed by the private players (e.g. toll-ways & bridges).
More about it later.

Caps,
I am not trying to argue with McKinsey's prediction nor i differ with most of what you said, however, i wanted to keep general readers here aware of some of the issues, challenges and priorities that india have to go through before they come close to what these predictions say. in other words, your article is pointing out the rosy result (economic boom) and i am trying to project the changes at status quo that india have to undergo before they can see that result coming through. and all in all, i don't see it as a piece of cake :P

on that note, let me point out some of the things that are needed to be done as far as materializing the economic prediction is concerned.

1) check the growth of population. looking at what china did to revolutionize and move the country from agriculture base to industry base, india need more time and labor than china for the same. let's look at the per capita income for indians -- it's still very poor in spite of all the hoopla about economic boom!

2) allow foreign investments in more areas, not just in computer/telecom related fields and for that simplify the process for entering into business. this is very important as per foreign investment is concerned. bureaucracy needs to be reformed along with social reformation.

3) boost agricultural growth through diversification and development of agro-processing.
agriculture should be made profitable. i am saying this, because a complete transition from agriculture to industry is not easy for a huge and densely populated country like india which has abundant rural regions.

5) develop world-class infrastructure. expand industry fast enough to integrate not only the surplus labor in agriculture but also the unprecedented number of women and teenagers joining the labor force every year in india.

6) lastly but most importantly, imparting education and providing quality health care to the people. there is a HUGE difference in that between rural and urban india. need to reduce the gap.

phew! i am being a bit optimistic for india here, to say the least :P

ARRRRRRGGGGGG~

few typos are there. typed everything in a real hurry. please bear with me. :-(

nity nite folks!

Mr captain, i was not saying only politician are responsible factors for economic growth, but what i was also saying is yeah india is grabing some sweet grapes at the moment but what is nepal doing being situated between these two giants who gonna crush the world of US sole powerful economy, where are we economically and politically. Every citizen of a country tries to gain economic sucess through political means, and what is happening in nepal, intra conflict. policy of politic depends upon economic success.

so i was giving the example of hen in the current political atmosphere in nepal. So, again the question remains where are we ? are we walking to the right path as a nation towards the sucess. Only history will tell us.

Nepal is missing out on great oppurtunity. Thanks to worst kind of politics being played.
I bet after sometime the developed countries will try to shut down investments into devloping countries in order to retain supremacy. The boom is not for ever. Even african countries are making double digit growth.

Dhotis and their media are really good in bullshitting.. ; u can see lots of news these days like " india will be super power in 50 years, india will be this and that after 20 years" but reality is infrastructure really sucks.. and their attitude is crap..

They can do it, they have skill and manpower and resources.. dhotis are learning from china's rapid success but it will take time. With the attitude of dhotis, and "democratic, corrupt and slow" political system in India; I do not think they can do it as fast as china..
and it wont happen in our lifetime..

Furthermore, if there is big climate change as predicted : indians and india's economy will suffer.; its predicted that due to glacier melt, Ganges volume will be reduced by 30 percent in next couple of decades.. this will have direct impact on 400 million dhotis who rely on Ganges for irrigration and drinking water.. dhotis will then suffer big time..

Heard that dhotis, when they travel to china, they get so amazed that they go numb for weeks.-... hahaha remember that India and china were on the same level in 70's: now china's GDP is probably many times bigger than doties.. shangais areas GDP is equivalent to half of indias GDP..

KajiRaja.

Stop giving consolation to yourself by pointing out faults in indian development. Think about nepal.

Nepal is in deep shit.. everybody knows that.. nothing can be done, until we remove a whole generation of politicians..

yusuf_aalam , are u a dhoti ?

developed countries will lick china and india.. until there is money to be made..

india and china is huge huge market.. without their market and cheap human resources , developed countries themself will be a poor country.. if EU and US can not sell their products to india and china.. , think of planes, cars, militiary equipments.. who will buy them.. ?

India and China are paper tigers who only have a huge Real GDP/Economic growth in their economic data releases but in reality the statistics are cooked up to suit their economic ratings (for loans, credit ratings, etc.)...A classmate of mine who worked for the Stats dept of the Chinese Reserve Bank. said once that there is no way one can avoid a biased reading as China is such a huge country and though villages make a majority of its landshare and popultaion, most of the sample readings are taken in the cities as the time constraint would be too great if they did it correctly. Also, since the task of collecting data is extremely demanding/strenous/time consuming and requires moderate expenses, a lot of the numbers are then estimated to look good enough to be included in the survey reading.

What makes me think that India would be any different?? Instead, it may be worse than the above.

Oh sure you should not run after one set of numbers. But this is not the only study out there that depicts a trend. There are a couple of others that corroborate the same trend - although they may differ on the rate and timing

At the end of the day, these are just forecasts. As with any form of financial and economic modeling, they could all change if the underlying assumptions change. The numbers that interest me most are those related to the GDP composition - specifically the currently discrepancy between employment and production - and the potential this holds for increased economic opportunities. 30% of the people producing 60% of the output and 60% of the people producing 20% of the output. That is bound to undergo a correction if the current trends continue.

Yes, needless to say, I would hope any one in their right minds making a decision about India would look at just more than this survey. The composite picture painted by this and many of the leading economic indicators show an economy undergoing a correction. Which at this point, based on all indicators, looks like an upward correction. Growth and wealth disparities exists but their impact on the current economic trends can be debated and will probably not be known for a while to come.

Just my thoughts. Some good information (and not-so-good too :D) out there in the posts :)

Samsara - Very interesting perspective. But I wonder how much and for how long the GDP numbers can be cooked. The purpose of the numbers for me, as for many others, is not so much to come up with a comparison to other countries, but to look for trends within those numbers reported from the same source. I personally would not allocate too much weightage into something like this.

Besides, the export and import numbers can be verified from the other party so it is unlikely that they can pad it up or down for long. You can often use those numbers to corroborate the rest of the GDP numbers that have been reported and can tell if they are wildly off.

"Dhotis and their media are really good in bullshitting.. ; u can see lots of news these days like " india will be super power in 50 years, india will be this and that after 20 years" but reality is infrastructure really sucks.. and their attitude is crap.. "

If they are bullshitting, it is not too hard to tell. At least for me. You need to be able to separate the hype from the substance. Sure there is hype, the BJPs "India Shining" being one of them, but I dont quite understand why people are in denial of the data and facts.

And as for their attitude, if their read your post, they'd prolly say the same thing about yours - specifically your use of the derogatory to describe them.

"And as for their attitude, if their read your post, they'd prolly say the same thing about yours - specifically your use of the derogatory to describe them."

I love your reaction to the follow poster's comment about attitude of Indians. Sorry for quoting another Indian, but Gandhi said 'be the change you want to see in the world' and whining about how their attitude is 'crap' is least constructive and doesn't help.

Good to read your post after a long time Captain. :-)

Bostongirl!!!

Good to see you back. It's been a long time indeed! How have you been? Hope all is well. Last I remember, there were wedding bells in the air :) How did that go?

Best wishes.

Went wonderfully well...still havent fought with the hubby so life is good :-)

Now getting back to the normal routine of working really hard and yes, back to sajha.

LOL!! That sure is a good life :)

Good to hear everything went well. Welcome back and hope to 'see' you around.

:)

Thank you! will definitely be around.