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India set to become world’s largest middle class consumer

India, the world’s second most populous country, could become the world’s largest middle class consumer by 2030, surpassing both China and the US.

According to forecasts by the Brookings Institution, the structure of the world’s middle class is changing, with the center of gravity shifting from the West to the East. In fact, the middle class in the Asia-Pacific region, led by India and China, is forecasted to be more than five times larger than that of North America in the next 5 years and 10 times larger by 2030.

This shift will be fuelled by much faster growth in emerging markets which on average are currently growing more than twice as fast as their developed counterparts. India, which enjoys a demographic dividend, is expected to become the fastest growing economy in the world in 2015, surpassing China.

Growth in India is being fuelled by massive reforms and increasing foreign investments under the country’s new investor friendly government.

The West-East shift in the middle class population will have major implications for the production and consumption of consumer goods and infrastructure development in emerging markets, leading to an acceleration of economic growth. What this implies is that emerging markets like India will continue to dominate global growth for decades to come as the contribution of the middle class to economic growth is deemed to be more sustainable than export-led growth.[i]

The Crossover from West to East
Size of the Middle Class, Projections to 2030 (millions of people and global share)
 
2009
2020
2030
North America 338 18% 333 10% 322 7%
Europe 664 36% 703 22% 680 14%
Central and South America 181 10% 251 8% 313 6%
Asia Pacific 525 28% 1740 54% 3228 66%
Sub-Saharan Africa 32 2% 57 2% 107 2%
Middle East and North Africa 105 6% 165 5% 234 5%
World 1845 100% 3249 100% 4884 100%
Source: The New Global Middle Class: A Cross-over From West to East, Brookings Institution, 2010

The middle class is also classified as the most important consuming class. It has an income elasticity of demand that is greater than 1[ii], which means that its increase in consumption, especially for durable goods, is typically greater than the increase in its income levels.

By 2030, it is estimated that the world’s middle class population will grow to 4.9 billion, up from 1.8 billion in 2009. The Asia Pacific region will account for 3.2 billion or two-thirds of the middle class population in 2030, up from 28% in 2009. Comparatively, the share of the middle class in North America will shrink from 338 million or 18% in 2009 to approximately 322 million or 7% in 2030.

China and India will account for the largest share of the middle class in the Asia Pacific region. The Brookings Institution estimates that by 2030, over 70% of China’s population could be middle class. However, it projects that by 2030 India could be the world’s largest consumer market, surpassing both China and the US.[iii]

http://emintelligence.com/emerging-markets/center-gravity-worlds-middle-class-shifts.html

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[i] The New Global Middle Class: A Cross-over From West to East, Brookings Institution, 2010
[ii] ibid
[iii] ibid

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