It seems to be a good time for the consumer goods industry in India. The country is set to become a truly middle class-led economy, fuelled by growth in income, according to a joint report by World Economic Forum and Bain & Company.
Consumer spending in India will grow from $1.5 trillion at present to $6 trillion by 2030, making the country the third largest consumer market in the world after the U.S. and China, said the report, released on Wednesday.
According to the report titled ‘Future of Consumption in Fast-Growth Consumer Markets’, the upper-middle and high-income segments are expected to grow from being one-in-four, to one-in-two households by 2030.
Domestic private consumption contributes to 60% of India’s GDP (against 40% in China), which means that the Indian economy is protected to a great extent against external shocks and cycles of low or high public investment.
The report comes at a time when India has witnessed a landmark year for deals in the consumer industry. Be it the Unilever-GSK deal, Zydus Wellness-Heinz India, or Flipkart-Walmart, the size of these deals stands testimony to the greater confidence in the Indian consumption story and industry experts expect more growth in the future.
The report added that by 2030, India will lift nearly 25 million households out of poverty; less than 5% of households will be below the poverty line by 2030, down from 15% today.
During the same time, it will add about 140 million middle-income and 21 million high-income households, overall nearly doubling the total share of these segments to 51%, the report said.
“Upper-middle-income households will drive 47% ($2.8 trillion) of total consumption, and high-income households will drive another 14% ($0.8 trillion), compared to 30% and 7% respectively today,” the report added.
However, socio-economic inclusion, the pace of job creation and skill development will be crucial for this envisioned income growth. The report quotes National Skill Development Mission findings to state that only 2.3% of India’s workforce is formally skilled, compared to 40% in China and at the current pace of about 6-7 million job additions a year, 30-35 million work-seekers may face unemployment by 2030.
According to World Economic Forum, “while India’s top 40 cities will form a $1.5 trillion opportunity by 2030, many thousands of small urban towns will also drive an equally large spend in aggregate.” Through improvement of infrastructure and access to organized and online retail, India can also unlock nearly $1.2 trillion of spending in developed rural areas, it added.
“The biggest channel disruption over the past 10 years has been the emergence of the e-Commerce channel. From almost nothing to a ~$15-20 billion channel (across categories) – this growth has been driven primarily by the rapid penetration of smartphones, increased availability of low cost, high-speed (internet) data and the multiple innovations by e-commerce companies (like cash on delivery) to build trust with the Indian consumer to buy online,” Nikhil Prasad Ojha, partner, Bain & Company told Fortune India.
While India’s aggregate income and consumption will grow rapidly, 10 large “breakthrough” states will lead the way: Kerala, Karnataka, Andhra Pradesh, Telangana and Tamil Nadu in the south; Delhi, Haryana, and Punjab in the north; and Maharashtra and Gujarat in the west, the report said.
In addition to rising income levels and reforms, strong demographics will be a strong enabler for broad-based consumption growth in India. Unlike many ageing nations in the West and East, India will remain a nation of the young with a median age of 31 in 2030 and consumption growth will also be fuelled by the burgeoning millennial and generation Z consumers (those born in or after 2006).
“In 2030, 77% of India’s population will comprise millennials and Generation Z,” the report revealed. “Having grown up with better education/ employment opportunities, and having higher incomes, they will likely break away from the frugal attitudes of their preceding generations.”
The report is based on in-depth consumer surveys conducted across 5,100 households in 30 cities and towns in India, covering all key demographic segments as also draws from over 40 in-depth interviews with private and public-sector leaders.