The country’s consumer market was forecast to expand at an average annual rate of 7.3 percent to reach more than 1.5 trillion dollars, according to the report conducted by the McKinsey Global Institute and released this month.

That would propel India from 12th to fifth-largest consumer market, behind the United States, Japan, China and Britain, displacing Germany.

“If China can do it, there’s no reason India can’t do it,” said D.H. Pai Panandiker, an economist who heads the RPG Foundation, a New Delhi-based think tank. “In fact, 7.3 percent may be an underestimate; the economy can grow faster if the government completes pending reforms like privatisation of the public sector.”

Encouraged by rising incomes and rapid economic growth, Indians are shedding their traditional propensity to skimp and save and a well-known aversion to credit to splurge on everything from beauty products and fancy clothes to luxury homes.

India’s consumer spending is now on a par with Brazil, and McKinsey’s forecast explains why global retail giants such Wal-Mart and Britain’s Tesco are battling to enter the 370-billion-dollar retail market.

“The combination of more income per person, more people and moderating savings will fuel a quadrupling of India’s consumer market over the next two decades,” McKinsey said in the report entitled “The Bird of Gold.”

Economic growth would filter through to bump up wages and household incomes, it said.

“This growth in incomes will make India’s households substantially richer over the coming two decades,” it said, predicting that average annual household income would nearly triple to 318,896 rupees (7,800 dollars) in 2025.

India’s rapid economic growth has resulted in a halving of the poverty rate in the past 20 years.

And the number of deprived would be reduced by about half again, dropping to 22 percent by 2025, according to McKinsey.

The climb out of poverty “will rank alongside China’s as one of the great achievements in economic history,” it said.

McKinsey also noted a change in Indian attitudes towards consumption and savings driven by optimism about the future, predicting that the household savings rate would fall, leaving more money available for consumer spending.

In 2006, Indians ranked first for the third time in a row in a global consumer confidence survey by the market-research firm A.C. Nielsen.

Foreign retailers eager to tap the potential are still waiting for the Indian government to greenlight their entry into the country, which now allows only single-brand retail stores such as Nike and Nokia.

At stake is the future of 15 million small family stores that critics say would be run out of business by deep-pocket retailers operating out of swish air-conditioned premises discounting everything from a cake of soap and a packet of rice to a microwave oven and a refrigerator.

Sonia Gandhi, the leader of India’s ruling Congress party, has urged Prime Minister Manmohan Singh “to first study the possible impact of transnational supermarkets on the livelihood” of small shopkeepers before opening up the market to giant retailers.

India’s biggest private company, Reliance, is already into retail with plans to open thousands of western-style supermarkets across the country, and foreign chains are signing franchise agreements to supply local partners.

“It’s pressure from the leftist parties and Sonia Gandhi that’s holding up the opening of retail,” said RPG Foundation’s Pai Panandiker. “The fear that small traders will vanish isn’t realistic; that hasn’t happened even in as advanced a market as the U.S. .

“Eventually they will have to consider the interests of consumers, who will benefit from lower prices and better quality from retail chains that are able to buy in bulk directly from the producer and eliminate middle-men,” he said.

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