The other side of midnight

How the consumer markets will look 60 years from now.

Sixty years ago, as the clock struck the midnight hour, India was a very clear have-not, trying to make a virtue of its poverty and desperately trying to carve out a middle path, not willing to lean too close to either superpower.

Over the years, especially in the post-1991 reform ones, India inched up the global income ladder "" from 1500, when India's income and population share in the world were both around 25 per cent, the income share fell but recovered gradually to 5 per cent in 1998 as compared to the population share of 16 per cent. But on its 60th birthday, India is still just about breaking in to the league of middle-income countries.

In the next 60 years, however, India is tipped to be one of the world's two largest economies, maybe even the biggest if it displaces China "" others will then seek to align around it or, as India did in 1947, try to eke out an existence by not aligning with it. Indeed, the 123 nuclear agreement with the US is an early recognition of that emerging face of India's power, and responsibility.

Achieving this will obviously be no mean task, but investment firm Goldman Sachs who first put out the possibility in so many words, in its report Dreaming with BRICS: The Path to 2050, shows it isn't difficult either. Indeed, the first report which projected India's economy would be 80 per cent that of the US by 2050, assumed a very do-able annual growth of around 6 per cent.

Earlier this year, impressed with the rapid growth of the last few years, Goldman Sachs relooked India's performance, found a structural break in growth patterns, and revised its projections upwards "" now, India's economy will overtake the US before 2050, though its per capita income will be around a fourth at that point in time.

While many doubt India can sustain high growth rates over a long period of time, it is worth keeping in mind that other countries have achieved similar growth patterns in their growth phase. Japan saw an eight-fold hike in GDP between 1955 and 1985, Korean GDP rose nine times between 1970 and 2000, and China grew by 10 times in an even lesser number of years.

How the catch up will happen is not rocket science either, it's simply following the same path of migration, to urban areas, to industry and services away from agriculture.

According to Goldman Sachs's modelling, a massive 700 million Indians will move to cities by 2050 "" this will take India's urban population to around 65 per cent. By 2067, 75-80 per cent of India's population could be urban.

Given that labour is, according to Sachs, four times more productive in industry, and six times more in the services sector (in comparison with agriculture), a sharp increase in total productivity as a result of this migration is obvious. Indeed, there are several studies showing a surge in productivity due to better roads and highways, all of which are an integral part of the move towards urbanisation.

As a result, India's income demographics will also change dramatically. Between 1995-96 and 2001-2, for instance, the NCAER's estimates showed the number of rich families (those with an annual income of over Rs 10,00,000) rose from 2.7 lakh to 8.1 lakh.

While NCAER has not made projections beyond 2009-10, consulting firm McKinsey has woven NCAER's survey results into a macro-model and it estimates that, by 2025, the number of such households will rise to 9.5 million "" that is, while such households will rise to around 3 per cent of the country's total, they will account for around a fourth of the country's total income.

All of this will have important implications in terms of the country's industrial and financial structure. Urbanisation levels of 65 per cent, as opposed to under half that today, will mean a huge demand for infrastructure industries like cement and steel and fortunes for real estate developers.

It also means that, if states do not change land ceiling laws and allow large tracts of land to be acquired from farmers, the progress will get halted. The furore over industrial land acquisition, or that over SEZs, are pointers to this being a serious problem.

Such progress, similarly, cannot take place if India continues to remain as under-banked as it is today "" while India's ratio of bank credit to GDP is less than half, the Asian average is round 0.9-1. In which case, as India's GDP rises more than 50-fold by 2050 (in constant dollars), and its banking rises to the Asian average, the surge in banking demand/stocks will have to be seen to be believed.

The country's stock markets, similarly, will soar with every rise in GDP "" today, the market capitalisation of Indian stocks is around 1-1.1 times the GDP, while that of more mature economies is around 1.3-1.5. Given that several Indian manufacturing firms will be world beaters then, the stock markets surging is par for the course "" even today, for companies like Suzuki, the Indian operations are more important than those in the parent market.