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Indicus Analytics, An Economics Research Firm

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The S-Curve
Amit Sinha

(www.indicus.net)

The central idea is that when an economy’s GDP per capita


passes $1,000, increased income begins to change patterns of
demand and push economic activity into a new, high-growth
phase.

I first saw the S-curve in detail about 10 years ago. I was then
working in the cement industry. The per capita GNP and the per
capita cement consumption of about 60-70 countries were
mapped. The horizontal scale was per capita GNP and the
vertical scale was the per capita cement consumption. The
countries were marked on this grid.

It was fascinating to see that most countries were placed along a


trajectory that was in the shape of an S. There was considerable
scatter, but the basic S-shape was discernable. The implication
was that as long as the economy was at low income levels,
growth in consumption was low. When it reached a certain
critical mass (Typically about per capita $2,500 ppp), it moved
into a significantly higher growth trajectory (the middle portion
of the S). Mature economies had low growth and even a decline
in consumption, the upper end of S. The higher growth
trajectory had at that time already been witnessed in SE Asia and
China.

This excited us a lot and we set about projecting the GDP and
estimating the take off point for the Indian economy and cement,
steel and other basic goods in particular. We came to the
conclusion that if all our assumptions were correct, 2003-2005

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Indicus Analytics, An Economics Research Firm
http://indicus.net/Blog/Index.php

should be the take off point. This was no rocket science, plain
interpretation of broad data and empirical evidence.

On hindsight, we now know that we were fairly accurate. The


economy did take off to a higher growth trajectory at around that
time.

Where does the take off actually start? There are various views
and the empirical data suggests that though the take off is
certain, the exact point is uncertain. The central idea is that
when an economy’s GDP per capita passes $1,000, increased
income begins to change patterns of demand and push economic
activity into a new, high-growth phase. There are schools of
thoughts that consider per capita GDP per capita as the more
appropriate indicator. GDP per capita can signal shifts in
consumer demand, because of which it is a yardstick that
multinational corporations use to figure out whether a country’s
population is ready to buy their products, from ordinary soaps to
higher end mobile phones. Under $1,000, people buy basic
commodity goods, loose and unbranded, in open markets. Above
$1,000, they begin to buy slightly better food, beverages,
clothing, basic packed and branded goods, and by $5,000 they
are buying predominately branded products.

The $1,000 idea originates with the S curve, a statistical pattern


developed for investments by Roger Babson in the 1920s that
Michael Howell adapted to emerging economies in 1992.

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