Much has been said and written about the new found prosperity of India’s middle class.

A report in the McKinsey Quarterly Journal says that over the next two decades, India’s middle class will grow from about 5 percent to more than 40 percent of the population. This will create the world’s fifth-largest consumer market.

Private spending in 2005 reached about 17 trillion Indian rupees1 ($372 billion), accounting for more than 60 percent of India’s GDP. In this respect, India is closer to developed economies such as Japan and the United States than are China and other fast-growing emerging markets in Asia.

India’s economic reforms, begun in 1991, have substantially improved the country’s well-being. McKinsey’s analysis shows that further improvements are to come. In 1985, 93 percent of the population lived on a household income of less than 90,000 rupees a year, or about $ 1 per person per day; by 2005 that proportion had been cut nearly in half, to 54 percent.

By their estimate, 431 million fewer Indians live in extreme poverty today than would have if poverty had remained stuck at the 1985 level. It is projected that if India can achieve 7.3 percent annual growth over the next 20 years, 465 million more people will be spared a life of extreme deprivation.

Along with the shift from rural to urban consumption, India will witness the rapid growth of its middle class—households with disposable incomes from 200,000 to 1,000,000 rupees a year. That class now comprises about 50 million people, roughly 5 percent of the population. By 2025 a continuing rise in personal incomes will spur a tenfold increase, enlarging the middle class to about 583 million people, or 41 percent of the population. In 20 years the shape of the income pyramid will have become almost unrecognizable.

Indeed exciting times ahead for all the beneficiaries of a booming economy.

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