**[investwise]** Mckinsey: India, The Enormous Opportunities!

 

Mckinsey Global Institute: India Could Outstrip China In Virtually Every Segment by 2025   Companies looking for opportunities in Asia inevitably look to China's rapidly growing urban markets, but they should also examine prospects in India more closely. India is urbanizing at a pace and on a scale only outstripped by China.   By 2030, 590 million Indians will live in cities compared with 340 million in 2008. At least two of India's cities (Mumbai and Delhi) will be among the five largest cities in the world by 2030.   Urbanization could unlock investment opportunities and new markets, many of which are not traditionally associated with India, including health care, infrastructure, project finance, education, and recreation. The Mumbai Metropolitan Region's GDP, for instance, could reach $265 billion by 2030, larger than the GDP of many countries today, including Portugal, Colombia, and Malaysia.   India could build 700 million to 900 million square meters of new residential and commercial space a year--equivalent to adding more than two Mumbais or one Chicago annually.   However, the scale of this opportunity for India and international players will be dependent on some fundamental changes to how India approaches urbanization. New research from the McKinsey Global Institute, McKinsey & Company's business and economics research arm, finds that if India handles this urban expansion effectively, it could add as much as 1.5% to GDP growth, taking it near the double-digit rate necessary to create sufficient jobs for the 270 million additional working age Indians expected between now and 2030.   But if India fails to improve the management of its urban centers, and continues to fund and build cities at today's dismally low levels, chaotic conditions will deter investors and jeopardize even today's growth trajectory, risking high unemployment.   There is much to do--and thus far India has barely acknowledged the managerial challenge in its cities. Even at today's urban population, cities are unable to effectively provide even a basic level of services. As cities expand, demand for services are set to increase five- to sevenfold in cities of every type and size.   The gap between demand and provision will widen dramatically if India continues to invest at today's very low levels. India's cities could face a shortage of 38 million affordable homes for low income citizens, leave 70% to 80% of sewage untreated, and face a 6,000 kilometer gap in rail-based mass transit.   India needs to boost its investment in cities dramatically to head off such shortages and avoid deterioration in the quality of urban life. Today, India's annual capital spending in per capita terms of $17 is only 14% of China's $116 and less than 5% of the United Kingdom's $391.   MGI estimates that India needs to invest $1.2 trillion just in capital expenditure in its cities over the next 20 years, equivalent to $134 per capita per year, almost eight times the level of spending today.   In transportation alone, India will require 350 to 400 kilometers of new subway lines annually (more than 20 times the subway capacity built over the last decade) and between 19,000 and 25,000 kilometers of road lanes every year (nearly equivalent to the amount India has built over the last ten years).   Can India pull this off?   The answer is yes, as long as it unlocks new sources of funding that are the bread and butter of well-run cities around the world--monetizing land, user charges, private funding, and formula-based funding from the central government. MGI recommends that India gives cities a stake in their own growth by sharing 18% to 20% of goods and services tax revenues directly with them, similar to arrangements we see in many other cities.   If India were to access these revenue streams, its largest cities could generate between 80% and 85% of the funds they need from their own economic growth, alleviating the strain on central government coffers.   Funding is not enough; India has to make enormous strides in the way it governs and plans its cities, and tackles issues such as the provision of affordable housing and the mitigation of climate change. For instance, India is home to the only large cities in the world that are not administered by mayors with substantial powers.   Indeed, India underperforms compared with international standards on all aspects of urban management, and there is an urgent need for a new operating model that can unleash the dynamism of its cities.   The first step is for India to recognize how central cities are to its economic prospects. If India manages its urbanization effectively, cities can generate 70% of net new jobs created to 2030, produce more than 70% of GDP, and stimulate a near-fourfold increase in per capita incomes across the nation.   Urban India offers huge new consumer markets as incomes rise. India's wealthiest segment in cities, defined as earning more than 1 million rupees a year, could number 11 million households, more than the total number of households in Australia. The number of urban Indian households with "true" discretionary spending power could rise sevenfold from 13 million households in 2005 to 90 million in 2025. India's relative share of world markets will rise in virtually every product and service category.   China's markets are far bigger than India's today because of its large population and higher per capita GDP, but this will change. While China's population is aging, India's is youthful and is set to overtake China's within two decades. India needs to ensure that it manages its urbanization in a way that optimizes the productivity and GDP potential of its cities and that the "demographic dividend" from this population growth pays out. If it does, India will emerge from the shadows of its larger and more high-profile neighbor. Safe Harbor Statement: Some forward looking statements on projections, estimates, expectations & outlook are included to enable a better comprehension of the Company prospects. Actual results may, however, differ materially from those stated on account of factors such as changes in government regulations, tax regimes, economic developments within India and the countries within which the Company conducts its business, exchange rate and interest rate movements, impact of competing products and their pricing, product demand and supply constraints.   Nothing in this article is, or should be construed as, investment advice.

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