Report Reveals That Half of India’s Population Struggles with Insufficient Spending Funds

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From ceiling fans to jewelry, branded goods are capturing a larger share of the Indian market. Despite its population of 1.4 billion people, around a billion lack disposable income for any non-essential items or services, according to a new report. The country’s consuming class, which represents the potential target market for startups and business owners, is estimated to be only about as big as Mexico’s, with numbers ranging from 130 million to 140 million people. Another 300 million Indians are categorized as “emerging” or “aspirant” consumers who have just started making purchases due to the convenience of digital payment systems.

However, the consuming class in Asia’s third-largest economy is not growing significantly but rather deepening, according to Blume Ventures’ report. This means that India’s wealthy population remains stable in number, even though those already rich are becoming wealthier. These developments shape the country’s consumer market distinctly and accelerate a trend called “premiumization,” where brands thrive by focusing on expensive, upgraded products aimed at the affluent rather than mass-market offerings.

This is evident in soaring sales of ultra-luxury gated housing and premium phones, while their lower-end versions face challenges. Affordable homes now account for just 18% of India’s overall market compared to 40% five years ago. Branded goods are also capturing a larger share of the market. The “experience economy” is thriving as well; expensive tickets for international artist concerts like Coldplay and Ed Sheeran sell quickly.

Companies that have adapted to these shifts have thrived, according to Sajith Pai, one of the report’s authors. “Those who are too focused on mass markets or lack products catering to the premium end are losing market share,” he told the BBC. The report’s findings support the long-held belief that India’s post-pandemic recovery has been K-shaped—where those at the top get richer while those at the bottom lose purchasing power.

This trend began before the pandemic and continues as inequality in India grows, with the wealthiest 10% now holding 57.7% of national income compared to 34% in 1990. Meanwhile, the bottom half’s share has fallen from 22.2% to just over a fifth.

However, a recent consumption downturn has deepened due not only to lost purchasing power but also severe drops in financial savings and increased indebtedness among the masses. The central bank has tightened regulations on easy unsecured lending that previously supported demand after the pandemic. “Turning off this tap will definitely have an impact on consumption,” Pai says.

Short-term factors, like a record harvest boosting rural demand and a $12 billion tax giveaway in recent budget announcements, could help boost spending but not dramatically. The country’s GDP, largely driven by consumption, might increase slightly over half a percent due to these changes, according to Pai.

But significant headwinds remain for the long term. India’s middle class—a major driver of consumer demand—is being squeezed out with stagnant wages over the past decade, according to Marcellus Investment Managers’ data. “The middle 50% of tax-paying Indians has seen its income stagnate in absolute terms over a decade,” says Pai. “This implies halving real incomes [adjusted for inflation].” This financial strain suggests that products and services associated with middle-class spending will likely face challenges ahead.

Moreover, white-collar urban jobs are becoming harder to find as artificial intelligence automates routine work like clerical duties and secretarial tasks. Fewer supervisors are employed in manufacturing units compared to total employment percentages, according to the Marcellus report. The government’s recent economic survey also highlights concerns about labor displacement due to these technological advancements.

In a mainly services-driven economy where many IT workers are engaged in low-value-added sectors prone to disruption, job losses could have significant macroeconomic implications for India’s consumption-based economy and overall growth trajectory if worst-case scenarios materialize.