Driven by a two-fold increase in household consumption spend, to be fuelled by increased opportunities in the services sector, India's gross domestic product is expected to double to around $1 trillion by 2010, according to the India Economics Report prepared by DSP Merrill Lynch.
The steady change in India's demographic profile, rising incomes, favourable change in age profile, increasing consumerism, availability of inexpensive retail credit and boom in the services sector will see household consumption spend double to $ 510 billion by 2008 from $ 250 billion in 2003.
In percentage terms, the household consumption spend will grow at a compounded annual growth rate of 15.2 per cent in the 2003-2008 period.
"Driven by rising consumption, we expect GDP to double by 2010 in nominal terms (6.8 per cent per annum real growth). We have not factored in any material uptick in the investment cycle, which could potentially double GDP in five years if investments were to kick-start in the next two-three years," Rajeev Varma, senior vice president (research), DSP ML, said.
Households are steadily graduating to higher income brackets. By 2007, approximately 22 per cent (4.4 crore) households will have an average income of more than Rs 1,45,000 per annum ($ 3,150), compared with under 7 per cent in 1995.
Equally important, the number of households falling in the low-income category has shrunk by a whopping 33 per cent to 5.9 crore (59 million) and is likely to fall to 4 crore (20 per cent of the total) by 2007.
There has been a substantial increase in the proportion of the population their 20s and 30s. 'Young earners' have contributed most to the rapid increase in the spending power of the urban India in the last few years.
Total number of young spenders are forecast to increase to 31.2 crore (312 million) by 2010 from 26 crore (260 million) currently.
The fall in interest rates by almost 600 basis points over the past three years and the banks' willingness to lend have made credit easily accessible for the "young" generation.
The key sectors that will spearhead growth within the services sector, both in terms of spurring consumer demand and also employment opportunities, are information technology enabled services, telecom, insurance, and financial services.
"We estimate that fresh employment opportunities for 80,000 to 100,000 graduates will be generated annually from the overall services sector in India," Varma said.