As I write about the slowdown of GDP growth and a slowdown in the overall Indian economy being a short-term phenomenon, I don’t just get mails from you all, but get questions from few friends and relatives as well on why I am so bullish?
Let me answer this question for you today by quoting a few reports from Niti Aayog, Strategy for New India @ 75 & McKinsey Global Institute’s – India Report.
Demographic Dividend: The Indian population is now at around 1.3 billion people, i.e., around 18% of the global population lives in India. India has the 2nd largest English speaking population in the world, and it is just 10% of the total population as of now. It is expected to quadruple in the coming decade.
The literacy rate in India has gone up to approximately 80% as compared to 65% in 2001. The unemployment rate was projected at around 3.5% in 2018 by the International Labour Organisation (ILO). By 2027, it estimates that 116 million people would get added to the Indian work force as compared to only 467 million people worldwide.
The median age by 2030 for Indians is projected to by 32 years. The same for USA is projected to be 39 and for China at 43.
The Rise Of Middle Class & Urbanisation: According to a report published by the World Economic Forum (WEF), India, by 2030, will add close to 140 million people in the middle-income category and about 21 million to the high-income households. The 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 same report also suggests that the below poverty line households will reduce from the current 15% households to less than 5% of households by 2030.
The rise in the middle class will drive both, household savings as well as consumption, giving an overall boost to the economy. The middle class, as most of them would be moving up from the lower thresholds, will be buying more electronics, two-wheelers, four-wheelers, etc.
We have seen a big migration of the population from rural India to urban India along with the strengthening of a few tier 1 cities in to metros and many tier 2-3 cities becoming tier 1 cities over the past few years. As of now, only 32% of the Indian population lives in the urban India and this is expected to grow to 40% by 2025.
For now, the 32% of urban population accounts for around 60%+ of overall consumption. Now, imagine this growth possibilities when the number goes up from 32% to 40%?
Rise of Household savings: With the strengthening of the middle class, it would surely give a great boost to overall household savings in India. This has been extremely evident when we see that the Gross Savings Rate in India which was lower that 10% in 1955 has gone up to over 30% now.
There’s more to this, this is even after the fall that we saw in 1980s followed by a steady rise in 1990s and then a small fall in early 2000s and a steep rise thereafter. Like I always say, the fall right now is just giving me an indication of what to expect in the near future.
Let me ask you a question here: When households move from the lower-income category to the middle-income category, would they not spend & save more? Most probably both, or worst case scenario, at least one of them?
- Roar of the Digital Tiger: The nationwide internet penetration rose from 8% in 2010 to almost 25% in 2016. It is most likely to grow to 55% or more by 2025, when the number of users will likely reach 850 million. The estimated total value of e-retail is like to reach $130 – $150 billion. In other words, they would be around 8 – 10% of total sales by 2025.
The digitally influenced spending is currently approximately $45-50 billion p.a. and is projected to increase more than tenfold to $500-550 billion, it would account for 30%-35% of all retail sales by 2025.