A new report suggests that a billion people in India lack sufficient income to spend on discretionary goods or services. According to Blume Ventures, India’s consuming class, which represents the potential market for businesses, is only about 130-140 million people, similar in size to Mexico’s population. An additional 300 million are categorized as “emerging” or “aspirant” consumers, but they remain cautious spenders despite the rise of digital payment options.
The report highlights that the consuming class in India is “deepening” rather than “widening,” indicating that the wealthy are getting richer without an increase in their numbers. This trend is driving a “premiumisation” effect in the consumer market, where brands focus on high-end products for the affluent rather than mass-market offerings. Evidence of this can be seen in the rising sales of ultra-luxury housing and premium smartphones, while affordable homes now make up just 18% of the market compared to 40% five years ago.
Sajith Pai, one of the report’s authors, noted that companies adapting to these shifts have succeeded, while those focused solely on mass-market products have lost market share. The findings reinforce the idea that India’s post-pandemic recovery has been K-shaped, with the rich getting richer and the poor losing purchasing power. This inequality has been growing since before the pandemic, with the top 10% of Indians now holding 57.7% of national income, compared to 34% in 1990.
The latest consumption decline is exacerbated by reduced purchasing power, falling financial savings, and rising debt among the population. The central bank’s crackdown on unsecured lending has further impacted spending. Short-term boosts may come from rural demand due to a record harvest and a $12 billion tax relief in the recent budget, potentially increasing GDP by over half a percent. However, long-term challenges persist.
Data from Marcellus Investment Managers shows that India’s middle class, a key driver of consumer demand, is being squeezed as wages remain stagnant. The middle 50% of taxpayers have seen their income stagnate over the past decade, leading to a halving of real income. This has severely impacted middle-class savings, now at a 50-year low. Additionally, white-collar urban jobs are becoming scarcer due to automation, particularly affecting routine work.
The government’s economic survey echoes these concerns, warning that labor displacement from technological advancements could disrupt India’s consumption-based economy and potentially derail its growth trajectory.
— news from BBC.com