Medieval Europeans called India a "golden bird" and managed to cage it for centuries. But now, it's ready to spread its wings and fly again. And this time too, the world is sitting up and taking note. "That incomes will leap is a fait accompli," says Hemant Sachdeva, Director (Marketing), Bharti Airtel, "and all indications are that the increase will be secular."

Sachdeva's optimism is not unfounded. Consider this: an average Indian today can potentially spend double of what he could in 1985; in the next 20 years, he will be able to spend four times what he does now, says a McKinsey Global Institute report titled The Bird of Gold: The Rise of India's Consumer Market. Result: India is expected to emerge as the world's fifth-largest consumer market by 2025, overtaking countries like Germany and Italy which are currently far ahead.

Providing ballast to this ride up the ranks of consuming nations is the country's expected annual growth rate of 6-9 per cent per annum (real compounded annual growth of 7-8 per cent) over the next two decades. This will almost treble middle class income levels-average real disposable incomes will grow from Rs 1,13,744 in 2005 to Rs 3,18,986 in 2025-and ensure that just over a fifth (22 per cent) of India's population remains desperately poor, compared to more than half (54 per cent) today. Simply put, 291 million Indians will move out from an existence of desperation into a more sustainable life.

By 2025, India's middle class is expected to swell almost 12-fold from its current size of 50 million to over 583 million people

Middle Class to Fuel Boom

These developments will have a major impact on what Indians buy and consume, how they go about it and also what marketers offer them. By 2025, India's middle class is expected to swell almost 12-fold from its current size of 50 million (other studies have placed it at 200-300 million) people to over 583 million and make up to 41 per cent of the population. "The sheer buying power of this emerging middle class will drive the economic engine," says Adil Zainulbhai, MD, McKinsey India. "In the future, there will be greater stress on the aesthetic value of products," feels Girish V. Rao, VP (Marketing), LG India, adding: "Durables like high-end refrigerators are already growing at 20-25 per cent per annum."

The report predicts that aggregate consumption will double from Rs 17 lakh crore today to Rs 34 lakh crore by 2015 and quadruple to Rs 70 lakh crore by 2025. A caveat: per capita spending in 2025 will remain modest at Rs 48,632.

Numbers aside, the report predicts that by 2025, the class structure of consumers will change. The new middle class (with real earnings of Rs 2-10 lakh p.a.) and the global class (earnings of more than Rs 10 lakh p.a.) will account for 79 per cent of total spending. Currently, consumers in the "deprived" and "aspirer" income segments (defined as those with annual household incomes of less than Rs 90,000 and Rs 90,000-2,00,000, respectively) account for about three quarters of total spending. "About 12 per cent of our customers fall within the aspirer segment now," says Kishore Biyani, md, Future Group, which owns the Pantaloon and Big Bazaar retail chains.

Discretionary Spends

By 2025, three-fourths of consumer spending will be discretionary, compared to just over half today. While Indians will continue to spend nearly a fourth of their disposable income on basic necessities, more than half the spend will be on transport, healthcare, personal products and education. The Marutis, Fortises and Hindustan Unilevers of this world, please take note. "In the next 10 years, we expect the four wheeler auto industry to grow at a CAGR of 10 per cent," informs Rajesh Jejurikar, Senior VP (Marketing), Mahindra & Mahindra. And there's good news for the country's booming telecom sector as well. The spend on communications will grow at 13 per cent per annum through 2025 and account for six out of every hundred rupees spent. "The key will be penetration," says Bharti's Sachdeva. "If you are not available before actual demand kicks in, you've lost the game," he adds.

The distribution of wealth, though still lopsided, will be a lot more equitable by 2025 than at present

Urban-Rural Gap Will Close

In 2025, the report predicts, urban India (with real annual household incomes growing at 5.8 per cent) will remain the main driver of consumption and wealth creation, accounting for 62 per cent of the total spends, but rural incomes, too, will register an upswing. The growth rate in annual rural income per household will accelerate from 2.8 per cent over the last two decades to 3.6 per cent over the next two; and rural consumption will reach the level of today's average urban household by 2018. "As rural India enters the post-modern economy, agriculture will become a smaller part of the whole pie, thereby significantly increasing the buying power of rural markets," says McKinsey's Zainulbhai. Adds LG's Rao: "Today, rural penetration in the consumer electronics market is just about a tenth of the urban reach; this will change, especially when consumer finance reaches the villages."

Even within urban areas, India's mid-tier and smaller cities, which will be home to almost two-thirds of India's middle class population, will emerge as increasingly attractive markets. In fact, mid-sized cities like Chandigarh, Ludhiana and Amritsar already have higher average incomes than their top-tier counterparts. And if marketers like Rao are to be believed, B and C class cities, and even semi-urban areas like Vellore and Hissar, are already taking to the replacement market. "The second-hand market for most home durables in these cities is dying," he says.

Mid-sized cities like Chandigarh, Ludhiana and Amritsar already have higher incomes than their top-tier counterparts

The Challenges

The growing consumer market will also throw up several challenges before the state and the private sector. For one, such stupendous growth hinges on the state continuing to pursue a pro-reform, pro-growth agenda. "The biggest challenges that the government needs to address are in education and infrastructure," says Zainulbhai, adding, "private enterprise will take care of the rest." However, analysts fear that if fundamental reforms promised by the government do not come through, the market will lose its sheen. Marketers will also have to offer high-end products at affordable price points. "Moreover, individual companies will have to keep in mind that the customer of the future will be extremely conscious of the cost of energy," says LG's Rao. "We will necessarily have to bring in smarter technologies."

The adventurers of yore had to cross the seven seas and overcome numerous obstacles in their quest for the golden bird. The marketers of tomorrow will face similar challenges-the form will have changed, but the content will remain the same.