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India's Future Is In Its Mega Cities Signally Huge Economic Growth Potential

Economics / India May 13, 2010 - 08:23 AM GMT

By: Frank_Holmes

Economics

Best Financial Markets Analysis ArticleMcKinsey 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.

By Frank Holmes, CEO , U.S. Global Investors

Frank Holmes is CEO and chief investment officer at U.S. Global Investors , a Texas-based investment adviser that specializes in natural resources, emerging markets and global infrastructure. The company's 13 mutual funds include the Global Resources Fund (PSPFX) , Gold and Precious Metals Fund (USERX) and Global MegaTrends Fund (MEGAX) .

More timely commentary from Frank Holmes is available in his investment blog, “Frank Talk”: www.usfunds.com/franktalk .

Please consider carefully the fund's investment objectives, risks, charges and expenses. For this and other important information, obtain a fund prospectus by visiting www.usfunds.com or by calling 1-800-US-FUNDS (1-800-873-8637). Read it carefully before investing. Distributed by U.S. Global Brokerage, Inc.

All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor. Gold funds may be susceptible to adverse economic, political or regulatory developments due to concentrating in a single theme. The price of gold is subject to substantial price fluctuations over short periods of time and may be affected by unpredicted international monetary and political policies. We suggest investing no more than 5% to 10% of your portfolio in gold or gold stocks. The following securities mentioned in the article were held by one or more of U.S. Global Investors family of funds as of 12-31-07 : streetTRACKS Gold Trust.

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