A recent study by Blume Ventures highlights a growing economic divide in India, suggesting that while the rich are getting richer, the majority of the population is struggling with financial limitations. With India's consumer market shifting towards premium goods, many are left behind, raising concerns about the long-term sustainability of this trend.
India's Consumption Crisis: Billion Lacking Spending Power
India's Consumption Crisis: Billion Lacking Spending Power
A stunning new report reveals that over a billion Indians are living without discretionary spending.
The report states that despite a population of 1.4 billion, approximately one billion individuals lack the financial means for discretionary purchases. This trend highlights a shrinking consumer base for businesses, echoing findings that only around 130-140 million people represent the true consuming class, roughly comparable to Mexico's market. Furthermore, an estimated 300 million individuals are categorized as “emerging” or “aspirant” consumers, hesitant to engage in spending despite the rise of digital payments.
Interestingly, the report identifies that India's consumption class is not expanding significantly but rather "deepening," meaning existing wealth is concentrated among the affluent, with no substantial growth in new wealthy consumers. This shift has led to a rise in “premiumisation,” where brands focus on luxury products rather than more affordable options. Consequently, sales of ultra-luxury goods, such as gated housing and high-end electronics, have surged, while accessible products struggle to maintain market presence. The experience economy is thriving too, with tickets for high-profile concerts being sold out rapidly.
Sajith Pai, one of the report's authors, noted that firms that have embraced these market changes are flourishing while those that cling to the traditional mass-market strategies are losing ground. The report aligns with narrative observations of a K-shaped economic recovery after the pandemic, where wealth concentration has intensified. The top 10% of earners now command nearly 58% of national income, starkly contrasting with the lower half whose share has dwindled from 22% to 15%.
The report indicates that recent declines in consumption stem from multiple factors, including diminished purchasing power and a rise in personal debt. The Reserve Bank of India’s measures to limit easy lending have further impacted those dependent on borrowed funds for spending.
In the immediate term, two potential factors could stimulate some spending growth: increased demand in rural areas following a record harvest and a recent tax reform that infuses $12 billion into the economy. However, predictions suggest that while these developments may give a slight boost to GDP, they are not expected to produce dramatic changes.
Long-term challenges persist, especially as the middle class—typically a key driver of consumer demand—faces stagnant wages. Data from Marcellus Investment Managers indicates this group has experienced real income halving over the last decade. Amidst rising living costs, household financial savings plummet to near-historic lows.
Moreover, as technological advancements, especially automation in AI, transform labor markets, white-collar jobs are becoming scarcer. Recent government surveys reflect concerns over potential mass labor displacement and the broader impacts on an economy reliant on consumption.
Should worst-case scenarios unfold, observers warn against the risk of diverting India's economic growth trajectory as consumption falters.
Interestingly, the report identifies that India's consumption class is not expanding significantly but rather "deepening," meaning existing wealth is concentrated among the affluent, with no substantial growth in new wealthy consumers. This shift has led to a rise in “premiumisation,” where brands focus on luxury products rather than more affordable options. Consequently, sales of ultra-luxury goods, such as gated housing and high-end electronics, have surged, while accessible products struggle to maintain market presence. The experience economy is thriving too, with tickets for high-profile concerts being sold out rapidly.
Sajith Pai, one of the report's authors, noted that firms that have embraced these market changes are flourishing while those that cling to the traditional mass-market strategies are losing ground. The report aligns with narrative observations of a K-shaped economic recovery after the pandemic, where wealth concentration has intensified. The top 10% of earners now command nearly 58% of national income, starkly contrasting with the lower half whose share has dwindled from 22% to 15%.
The report indicates that recent declines in consumption stem from multiple factors, including diminished purchasing power and a rise in personal debt. The Reserve Bank of India’s measures to limit easy lending have further impacted those dependent on borrowed funds for spending.
In the immediate term, two potential factors could stimulate some spending growth: increased demand in rural areas following a record harvest and a recent tax reform that infuses $12 billion into the economy. However, predictions suggest that while these developments may give a slight boost to GDP, they are not expected to produce dramatic changes.
Long-term challenges persist, especially as the middle class—typically a key driver of consumer demand—faces stagnant wages. Data from Marcellus Investment Managers indicates this group has experienced real income halving over the last decade. Amidst rising living costs, household financial savings plummet to near-historic lows.
Moreover, as technological advancements, especially automation in AI, transform labor markets, white-collar jobs are becoming scarcer. Recent government surveys reflect concerns over potential mass labor displacement and the broader impacts on an economy reliant on consumption.
Should worst-case scenarios unfold, observers warn against the risk of diverting India's economic growth trajectory as consumption falters.
