By John Satish Kumar
MUMBAI (MarketWatch) — Unlike the rest of the rest of the BRIC countries, which are export-oriented, India’s economy is predominantly based on domestic consumption.
Coupled with foreign investment inwards, domestic consumption is the other engine of the country’s growth.
Consumption has played a much larger role in India’s gross domestic product growth compared to other developing economies, in which growth is led more by investment.
Over the last five years, the average ratio of consumption to gross domestic product was 70%, of which private consumption alone was 59%, while investments and net trade made up the rest, according to a report by Standard Chartered.
Thousands Demonstrate for Reform in Morocco
Several thousand people rallied in Moroccan cities on Sunday demanding political reform and limits on the powers of King Mohammed VI, the latest protests demanding change that have rocked the region. Video courtesy of AFP.
The combination of rapidly rising household incomes and a robustly growing population has contributed to a striking increase in consumer spending and it’s widely expected that this trend will continue.
India’s demographic dividend is highlighted by the fact that it has 17% of the world’s population and that half of these are below the age of 25. Whereas China’s dependency ratio bottoms in the next five years, for India it’s likely to bottom out only in 2040.
Consultancy Deloitte forecasts that India will become the world’s fifth largest consumer market by 2025 from 12th position now, providing significant opportunities for consumer business. Aggregate consumption is expected to quadruple to 70 trillion rupees ($1.55 trillion) in that time.
According to a study, “Foresight 2020,? conducted by the Economist Intelligence Unit, though the U.S. will continue to be the largest consumer market, China will emerge as the world’s second-largest and India will rival the bigger European markets.
India’s share in world consumer spending is set to increase from 1.9% in 2005 to 3.1% in 2020.
About 80% of that consumption growth is expected to come from rising incomes, while 16% will be due to an increase in the number of households and only 4% will be due to changes in India’s household savings rate, a study by McKinsey said.
With so much going for it in the long term, local consumer stocks have still been relative underperformers in the recent past.
Over the past 12 months, the Bombay Stock Exchange’s Consumer Durables Index, Auto Index and the Fast Moving Consumer Goods Index have risen 40.22%, 24.57% and 19.69% respectively, compared with the benchmark Sensex’s /quotes/comstock/29m!sensex (XX:SENSEX 18,296, -142.15, -0.77%) 12.47% rise.
Fast moving consumer goods are daily consumables like soaps, shampoos and toothpaste.
Month-to-date, however, these indexes are down 4.61%, 1.99% and 2.10%, compared with the 0.63% fall in the Sensex.
This may have nothing to do with ground reality.
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