India’s Urban Future

McKinsey Global Institute (MGI) believes India is on the verge of the second-greatest urban migration the world has ever seen. In their new report India’s Urban Awakening, MGI says India’s urban population could balloon to 590 million—nearly twice the size of the United States—by 2030.

MGI says India will have “68 cities with populations of more than 1 million, 13 cities with more than 4 million people and 6 megacities with populations of 10 million or more.”

MGI says the Indian economy is expected to be five times greater by 2030, with urban centers being the key driver of this growth. It projects India’s labor force to increase by 270 million—70 percent of that coming from urban jobs.

This new labor force will also be relatively young compared to other BRIC countries. The median age for the Indian population is 25.3 years—lower than Brazil (28.6 years) and well below China (34.1 years) and Russia (38.4).

In order to meet the needs of this urban class, MGI estimates India will need:

  • $1.2 trillion in capital investment
  • 2.5 billion square meters of roads to be paved
  • 700-900 million square meters of commercial and residential space
  • 7,400 kilometers of subways and transportation to be constructed

To put these figures into perspective, the investment amount needed is about one-third of India’s total GDP in 2009. And if 700-900 million square meters of real estate sounds like a lot, that’s because it is. India would need to build a city the size of Chicago every year for the next 20 years in order to create enough commercial/residential space.

While these numbers are staggering, perhaps the most important figure for commodity demand is MGI’s projections on the growth of India’s middle class. MGI estimates that India will have 91 million middle class households by 2030, that’s more than a 300 percent increase from the 22 million they have today.

As we’ve said many times before, the growth of the middle class in the developing world, especially in Asia, is a key driver of demand for oil, steel, copper, cement and countless other resources because the wealthier these people are, the more they will consume.

This mass of people will likely demand better housing, better roads, better goods— in all, a higher quality of life than what’s been available to them in the past. The resulting pressure this could have on commodity demand is the X-factor that we believe makes this cycle different than anything we’ve experienced in the past.

You can download the full report at McKinsey’s Web site.

About Frank Holmes 263 Articles

Affiliation: U.S. Global Investors

Frank Holmes is CEO and chief investment officer of U.S. Global Investors, Inc., which manages a diversified family of mutual funds and hedge funds specializing in natural resources, emerging markets and infrastructure.

The company’s funds have earned more than two dozen Lipper Fund Awards and certificates since 2000. The Global Resources Fund (PSPFX) was Lipper’s top-performing global natural resources fund in 2010. In 2009, the World Precious Minerals Fund (UNWPX) was Lipper’s top-performing gold fund, the second time in four years for that achievement. In addition, both funds received 2007 and 2008 Lipper Fund Awards as the best overall funds in their respective categories.

Mr. Holmes was 2006 mining fund manager of the year for Mining Journal, a leading publication for the global resources industry, and he is co-author of “The Goldwatcher: Demystifying Gold Investing.”

He is also an advisor to the International Crisis Group, which works to resolve global conflict, and the William J. Clinton Foundation on sustainable development in nations with resource-based economies.

Mr. Holmes is a much-sought-after conference speaker and a regular commentator on financial television. He has been profiled by Fortune, Barron’s, The Financial Times and other publications.

Visit: U.S. Global Investors

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