As I looked out the window from my 16th floor room in the Hilton Towers Hotel in Mumbai on Friday, I saw a city that reminded me of New York. It was busy and chaotic in Mumbai, a city that went by the name of Bombay until 1995, but the commotion seemed more understandable here than it did in the other parts of India we visited. I actually think I could live here, a comment I would not make about Delhi or Bangalore.
Renny Thomas, a consultant with McKinsey & Company, made a compelling case for India’s economic potential during a morning-long briefing. He explained India has 200 million households. Each household represents an average of 5.5 people. Three things will happen over the next 40 years: The number of households will grow, the average income of the wage earners in those households will grow, and the average number of people in those household will decline.
These trends are motivating to any company which offers household products. Nowhere else in the world is there such a large market with so much up-side potential. The average household size in China is 3.7 people and in Russia it is 2.8 people, Thomas offered for context.
Thomas noted that 30 percent of the country’s population currently lives in urban areas, a percentage that is expected to grow to 70 percent in the next 50 years when the population is expected to level off at 1.5 billion people. Currently, 700 million people or 75 percent of the country’s population, live in rural India, dotted with some 65,000 villages.
I wondered whether the country’s 9 percent annual GDP growth would mean much to those living in rural areas. A reliable source of electricity cannot be guaranteed even in urban areas, so what hope might there be for raising living standards in rural areas? Thomas said wide-area wireless networks will bring internet access to low-cost battery operated computers, which will help bring new levels of education to the country’s remotest sectors. “The country gets wireless,” he said, citing the fact that Indians are signing up for cell phone service at a rage of 6 million new subscribers per month. In a country were land lines were never particularly reliable for communication, more Indians that ever are talking to each other by cell phone.
Habil Khorakiwala, head of the Federation of Indian Chambers of Commerce, said the proportion of people living in poverty in the country already has declined by 15 percent since the country opened itself up to economic reforms in 1992. The middle class has grown from as small as 15 million people to well over 100 million people in the last 15 years.
Thomas cited McKinsey & Company data which showed the number of “deprived” households – the poorest of the poor – had dropped as a percentage of total population from 80 percent in 1995 to 54 percent in 2005. By 2025, it is projected to drop to 22 percent. By 2025, 41 percent of the country’s population is expected to be in the middle class.
To my mind, helping hundreds of millions of people out of poverty is a very compelling reason to get involved in commerce with India. It is always gratifying to know that a business venture may bring profits, but I think it is even more exciting to consider that it will help people live at a better standard of living.
Clearly, there are a number of barriers to doing business in India – poor infrastructure, high import duties, unreliable sources of electrical power and water. But all kinds of American companies have shown those obstacles can be overcome. If you want to be a part of the biggest economic development story in the history of the planet, then India is the place to be.
tMichaelB is the web site for Tom Bengtson, who writes about business, religion, family and politics.
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