India will be key to further worldwide commodity demand as the country finally competes with China in growth, prosperity and military strength
Sonal Chopra
May 8, 2005

India is waking up to the need of her one billion and growing population. Indian middleclass is the fastest growing affluent population in the world. The demand for good and services in India will skyrocket in coming years. India is waking up to compete with China in terms of growth, prosperity and military strength.

India is seen narrowing the gap with China in becoming a major consumer of raw materials and influencing global commodities markets in the years ahead, analysts said.

With annual gross domestic product growth of 9.0 pct since 2003 and some 1.3 bln inhabitants, China has played a key role in raising the price of commodities traded on world markets.

Oil, metals, cotton, rubber, sugar, grains, wool -- all are sought by China in large quantities and the slightest change in its demand for such products can have a major influence on price direction.

India, which also boasts a population of more than one billion people, is yet to wield the same influence over commodities as its Asian neighbour, but for many analysts it is only a matter of time before it catches up.

"It is clear that in one or two decades, the trading landscape will change in tandem with these two countries'' evolution," Refco analyst Philippe Pesque said.

"They are the world's two biggest demographic powers and which have the most unbelievable rates of growth. In a generation, if there are no hitches, their impact (on commodities) will be very spectacular," Pesque added.

Investec analyst Bruce Evers said there is "huge scope" for the gap between India and China to narrow.

"The Indians are incredibly entrepreneurial," he said.

"There is a rapidly growing middle class who are making a lot of money through setting up their own businesses, and this access to new money is enabling them" to consume.

India has contributed largely to soaring Asian demand for hard commodities, such as oil and metals, during the past two years.

It is by far the world's biggest consumer of gold, representing about a fifth of global demand. The precious metal is bought in bulk in the form of jewellery that is offered as gifts on the occasion of marriages and the country's various festivals.

"Gold is a big part of Indian life and as people get richer they''ll buy more gold jewellery," Evers said. China is the world's biggest consumer of platinum jewellery.

India accounts for only 2 pct of world copper demand compared with 22 pct by China, which is ahead also regarding crude oil. China accounts for 8 pct of crude compared with 3 pct by India.

In 2004, India began importing sugar for the first time and the country imports a lot of cotton as well as some wheat and maize. However, it has been lukewarm about cocoa and coffee, preferring the taste of tea.

But as Pesque pointed out: "As standards of living evolve, the Chinese and Indians could start to drink coffee and eat chocolate. I imagine they drank little Coca-Cola one or two decades ago," he quipped.

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