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The State of India’s Consumer Market: Navigating Inequality and Premiumisation

India, with a population of 1.4 billion, reveals a complex consumer landscape where approximately one billion individuals are unable to engage with discretionary spending, according to a recent report by Blume Ventures. This means that the actual consumer base—those likely to spend on non-essential goods and services—is limited to about 130 to 140 million people, similar to the size of Mexico’s consumer market.

Moreover, an additional 300 million are categorized as “emerging” or “aspirant” consumers, who, while starting to make purchases, remain cautious with their spending habits. The rise of digital payment systems has simplified transactions, yet many in this group are still hesitant to fully embrace spending.

Interestingly, rather than expanding, India’s affluent class is becoming “deeper” in terms of wealth, as the existing wealthy population accumulates more resources without an accompanying growth in their ranks. This phenomenon is driving a trend toward “premiumisation” in the market, focusing on high-end products that cater to wealthier demographics and leaving more affordable offerings to lag behind.

This shift is visible through the increasing sales of ultra-luxury apartments and premium electronics, while demand for lower-priced alternatives declines. In fact, affordable homes now make up only 18% of the real estate market, down from 40% five years prior. Branded products continue to gain traction, with the “experience economy” flourishing as high-ticket items, such as concert tickets for renowned international artists, fly off the shelves.

As outlined in the report, firms that align with these evolving trends tend to prosper. Sajith Pai, one of the authors, remarked that companies concentrating solely on mass-market solutions or lacking a premium product mix have seen a decline in their market share.

The report reinforces the perspective that India’s recovery from the pandemic is K-shaped, indicating that while the affluent class has become wealthier, the economically disadvantaged are struggling with diminished spending power. This inequality has deep historical roots—data reveals that the top 10% of earners now command 57.7% of the national income, a significant leap from 34% in 1990, while the income share of the bottom half has dwindled from 22.2% to 15%.

The current consumption slump is exacerbated by a decline in financial savings and rising debt levels among the general populace. The Reserve Bank of India has restricted unsecured lending practices that had previously fueled consumption following the pandemic.

Speaking on the implications of these shifts, Pai noted that consumption trends among the emerging class heavily relied on accessible credit; restricting such loans will inevitably impact overall spending patterns.

In the near term, however, there are factors that might bolster consumer spending. A surge in rural demand, buoyed by a record harvest, alongside a $12 billion tax initiative in the latest budget, may provide some relief. Although the impact is projected to be moderate, it could enhance the country’s GDP—primarily driven through consumption—by over half a percent, as per estimates.

Despite this modest potential for short-term uplift, significant long-term challenges persist. The middle class, which has traditionally been the cornerstone of consumer demand in India, is increasingly marginalized—with wage stagnation reported by Marcellus Investment Managers. Over the past decade, the income of the middle 50% of taxpayers has remained static in real terms, indicating a reduction in their purchasing power.

This ongoing financial squeeze has severely impacted the middle class’s savings, which have plummeted to levels nearing a 50-year low, according to data from the Reserve Bank of India. Consequently, products and services typically enjoyed by middle-class consumers may face considerable challenges in the upcoming years.

Moreover, the landscape for employment is evolving, with urban white-collar jobs facing threats from automation as artificial intelligence takes over traditional clerical and support roles. The government’s recent economic survey identified such labor displacement as a significant risk for India’s largely service-based economy, particularly affecting sectors most susceptible to disruption.

As India braces for these seismic shifts, the survey cautions that a decline in consumption driven by workforce disruption could have far-reaching implications for the nation’s economic trajectory.

Source
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