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NEW DELHI — Raman Kathuria vows his New Delhi Mercedes-Benz dealership will never underestimate the Indian consumer again.

When Mercedes first came to India 11 years ago, it sent only its oldest and most pared-down models, thinking that Indian buyers and their wallets weren't ready for true luxury.

As the first luxury car to be offered in an eager India, Mercedes sold 1,800 cars in 1996. But as consumers learned that these were outdated models, sales fell to 736 in 1999. Now, manager Kathuria imports Mercedes' top models from Germany, priced at $95,000 each, and custom-designed for Indian consumers with some $40,000 in features — from massaging leather seats to infrared dashboard displays for night driving. Double the price for import taxes, and each car tops $250,000.

The new capitalist India is all about keeping up with the Kumars. After decades of socialism, India's consumer revolution is still in its infancy. But at all levels, Indian shoppers are using new wealth to buy something better — whether it be a Mercedes or a cellphone.

"From the guy at the bottom moving from buying soap to buying shampoo to the guy at the top trying to act like his global counterpart, this is the first time that Indians have been able to afford discretionary spending," says Subbu Narayanswamy, a Mumbai-based analyst for the consulting firm McKinsey & Co.

Growing consumer market

India is the world's 12th-largest consumer market. By 2025, it is projected to be the fifth-largest, ahead of Germany, according to a recent McKinsey survey. As with China, however, the strength of the Indian market will be in its size, not its individual spending power.

In 2004, China's per capita consumer spending was about $500, according to Goldman Sachs. Today, India's is less than $350, but it is forecast to more than triple to $1,065 in 2025, McKinsey reports.

Across all economic classes, spending is up 40% to 50%, Narayanswamy says. And the global class of consumers, who buy top-branded and luxury items is expected to grow tenfold by 2025 to 23 million.

India's middle class numbers only about 50 million, if measured by those who have annual incomes of $4,380 to $58,820 — the equivalent of $23,530 and $117,650 in American purchasing power. By 2025, that figure could hit 583 million, McKinsey predicts.

Moreover, household disposable income will grow 5.3% a year to $7,000 in the next 20 years. Though slower than China's forecasted rate of growth, that contrasts starkly with income growth in developed nations such as the USA (1.5%) and Japan (0.3%).

Generations of pent-up demand

Indians at the leading edge of the curve are already beginning to spend that money. After lean years in which imports were rare and consumer goods were generally scarce and shoddy, they are releasing generations of pent-up demand.

As recently as the 1980s, Indians could only buy one of two kinds of cars, both Spartan: an Italian Fiat or an Indian Ambassador. They often had to wait years for delivery.

Today, the head of BMW Asia says the defining characteristic of Indian consumers is their desire to buy every available feature.

"What the Indian consumer wants is the latest technology, and in the premium car segment, they're looking for a fully loaded car," Linus Schmeckel says. "They don't like to be seen as second-class consumers."

In a society still sharply divided along the lines of caste, class and religion, consumerism can serve to maintain lines that have been blurred in recent years by economic mobility and government policies.

"India tends to be very status conscious," says Raman Mangalorkar, a consumer market analyst in Mumbai for the consultancy A.T. Kearney. "A subtle hierarchy gets established in one's mind, and people use these symbols to put themselves in different levels of standing."

At the highest end of the market, the trend is still small. Mercedes' Kathuria estimates that he sells 150 fully loaded imports a year; BMW's new India plant will make about 1,700 units annually for the domestic market. But the trend is upward.

"Spending power is going up by the day," says Kathuria, estimating that sales are growing by 10% to 12% a year. "Consumers are becoming very demanding — they want the best."

The same is true across all economic levels. Praman Kapur, who works in real estate and construction, cannot yet afford a fully loaded Mercedes, but he has spent more than $2,000 in his quest to get his modest Skoda sedan to do zero to 60 miles per hour in six seconds.

He had a used Mercedes for a while, which included a button that would lower the car 5 inches to make it more aerodynamic. "I had never seen this stuff in India," he says.

Kapur says he's interested in a midclass BMW roadster that he could customize. "I've been closely looking at that," he says.

Hugo Boss, plasma television

As India's middle class grows and becomes more acquainted with the outside world, it is increasingly seeking to emulate the world's buying habits. That has meant the spread of Hugo Boss stores and a run on plasma TVs.

For that reason, Varun Mirchandani has shunted the old-fashioned color televisions into the far corner of his store. Two years ago, 90% of his sales at the Rhythm Corner electronics store were traditional color TVs. Now, 65% are plasma.

"If they're buying something at ($1,500), they might stretch it to ($2,000)," he says.

Even Indians on working-class wages are not excluded. Asha Maya Tamangi spent $170 — or nearly the equivalent of two month's wages as a housekeeper — to buy her new mobile phone, which includes a radio and a video camera.