India: The Next Middle Class Wave

From 2001 to 2011 the global middle class grew from 7% to 13% and was primarily concentrated in China, South America and Eastern Europe.1. The most notable of this middle class growth has emerged from China. Between 2000 and 2012 China’s urban middle class rose from 4% to 66%.2.  

Although still swelling and with significant revenues still to be had from the Chinese middle class wave, business leaders interested in strategically positioning themselves to maintain or capture market share are already looking to the next big wave. Those business leaders are looking to India.

Population and Economic Growth: Drivers of India’s Emerging Middle Class

India has two key components driving the emergence of its middle class – a growing population and a growing economy fueled by strong domestic policy, a strong foundation in the high tech industry, an entrepreneurial culture and now, manufacturing.

Recent United Nations (U.N.) projections show India’s population surpassing China’s much earlier than expected. The U.N. anticipates India’s population will surpass China’s by 2022. They also project India’s population will continue to grow to 1.5 billion by 2030 and 1.7 billion by 2050.3.

Currently, India’s middle class is only about 5% of its population or 50 million people. Like India’s overall population, its middle class is projected to grow significantly reaching 200 million by 2020. Additional projections show India’s middle class ballooning to 475 million by around 2030.4.

Narenda Modi, the current Prime Minister of India, has made significant economic improvements since he was elected in May 2014. Since taking office inflation has dropped from 9% to 5%, and economic growth has risen from 5% to 7.5%. India has outpaced China for the first time since 1999 and projections expect its GDP to rise from 7.5% to 8.3% in 2015.5.

Prime Minister Modi’s economic improvements have capitalized on India’s initial position in the tech industry. India is the world’s 4th largest start-up hub boasting 3200 startups in 2014. This high-income earning, entrepreneurial industry has provided a strong economic foundation which Modi has followed with the “Make in India” policy. Since he took office, Modi has persuaded manufacturers to move in-country starting with Samsung and Airbus.6. This is out of step with how China built its economy – first with manufacturing and then with tech entrepreneurism. India has flipped with starting with high tech, fostering entrepreneurism and is now moving to supportive manufacturing.

Growing both economically and in its population, the World Bank predicts India has the potential of becoming the world’s third largest economy within 10 years, and the global leader in the next 30 years.7.

Middle Class And The Middle Class “Sweet Spot”

Defining “middle class” is a challenge for economists. Economies run on scale and a middle class standard in a poorer economy may be at, or near, poverty in a wealthier economy. Pew defines a middle class income as $10-20 a day, which translates to an annual income of $14,600 to $29,200 for a family of four. In the U.S., that range straddles the poverty line which was $23,021 for a family of four in 2011.8. Currently, in India $10/day actually equates to a high-income earning class. The middle class is better defined at about $3/day.9. Albeit consumers in India currently have weaker purchasing power, they should not be discounted. As more and more of the population rises up to and breaks the $10/day threshold, there is a compounding economic effect. These new higher income earners drive economic returns helping others to move up. As this engine churns, a country will eventually hit what EY calls an economic “sweet spot” or when the average per capital income equals $6,000USD. EY estimates India will reach this “sweet spot” in 2017.10.

Strategically aligning market entry to when an economy hits its “sweet spot” is key to capitalizing on increased spending habits. With India’s sweet spot just around the corner, business leaders looking to maximizing opportunity in capture the Indian middle class market share should be looking to enter in the next 12 to 24 months.

 

Kristy Askam Catlin

MBA Candidate 2016