The World's Next Big Spenders; How India's rising and unique middle class will reshape global consumer markets.

Byline: Diana Farrell and Eric Beinhocker (Farrell is director of the McKinsey Global Institute, McKinsey & Co.'s economic research arm, where Beinhocker is a senior fellow.)

Throughout India's history, the vast majority of its people have lived in desperate poverty. As recently as 1985, more than 90 percent of Indians lived on less than a dollar a day. Yet India is poised to undergo a remarkable transformation. New research from the McKinsey Global Institute (MGI) shows that within a generation, the country will become a nation of upwardly mobile middle-class households, consuming goods ranging from high-end cars to designer clothing. In two decades the country will surpass Germany as the world's fifth largest consumer market.

The headlines of India's growth story are well known --after the country began reforming in the early 1990s, economic growth jumped to about 7 percent. It slowed in the late '90s but since 2002 has proceeded at a blistering pace, surpassed only by China among the world's large economies. Less well known is how this growth is reshaping the lifestyle of Indian families. MGI's research portrays a dramatic transformation that will touch Indians up and down the income pyramid, from the poorest rural farmer to the wealthiest IT entrepreneur. Companies that fail to understand the unique desires and tastes of the new Indian consumer will miss out on a half-billion-strong market that along with China ranks as one of the most important growth opportunities of the next two decades.

One of our most striking findings is how dramatically recent growth has reduced the numbers of the poorest Indians, a group we call the deprived. They earn less than 90,000 Indian rupees a year ($1,969 per household, or about a dollar per person per day), and include subsistence farmers and unskilled laborers who often struggle to find work. ...