India’s Unequal Consumption Landscape: A Billion Left Out of Discretionary Spending
The Harsh Reality of India’s Consumer Market
India, a nation of 1.4 billion people, presents a stark economic divide, with nearly a billion citizens lacking the financial capacity for discretionary spending, according to a recent report by venture capital firm Blume Ventures.
A Limited Consumer Base
While India is the world’s most populous country, its true consumer market is significantly smaller than its overall population. The report estimates that the actual “consuming class,” which comprises individuals with disposable income, numbers only around 130-140 million people—comparable to the population of Mexico. An additional 300 million people are classified as “emerging” or “aspirant” consumers, but their spending remains cautious, driven in part by the ease of digital transactions.
Market Deepening Instead of Widening
Contrary to expectations, India’s consumer class is not expanding in breadth but instead becoming more concentrated. This means that while the wealthy continue to amass greater wealth, the overall number of affluent individuals remains stagnant.
This shift has led to a rise in “premiumisation,” where brands focus on high-end, luxury products rather than mass-market goods. The trend is evident in sectors such as real estate and technology, where ultra-luxury gated housing and premium smartphones are seeing a surge in demand, while more affordable alternatives struggle. Five years ago, affordable housing made up 40% of the market; today, it has shrunk to just 18%.
The Experience Economy and High-End Consumption
India’s wealthiest consumers are also fueling an “experience economy,” as evident from the booming sales of expensive concert tickets for global artists like Coldplay and Ed Sheeran.
Sajith Pai, one of the report’s authors, told the BBC that businesses failing to cater to the high-end market are losing ground. “Those who are too focused on the mass end or have a product mix that doesn’t include premium options have lost market share,” he explained.
The K-Shaped Recovery and Widening Inequality
The findings reinforce the notion that India’s post-pandemic economic recovery has followed a K-shaped trajectory, with the affluent benefiting disproportionately while the lower-income segments suffer a decline in purchasing power.
This disparity is not new. Economic inequality in India has been deepening for decades. In 1990, the top 10% of earners held 34% of the national income; today, that figure has risen to 57.7%. Meanwhile, the bottom 50% have seen their share of national income decline from 22.2% to just 15%.
Declining Financial Stability and Growing Debt
The current consumption downturn is exacerbated by dwindling financial savings and mounting debt among the broader population.
The Reserve Bank of India (RBI) has responded by tightening regulations on unsecured lending, which had been a key driver of consumer spending. “Turning off that tap will definitely have some impact on consumption,” notes Pai.
Short-Term Boosts Amid Long-Term Challenges
While immediate relief may come from a strong rural harvest and a $12 billion tax relief package included in the latest budget, these measures are unlikely to drive substantial, long-term economic change. Pai estimates that these factors may boost India’s GDP growth by just over half a percentage point.
However, the country’s middle class—a vital driver of consumer demand—is under increasing pressure. According to data from Marcellus Investment Managers, income levels for the middle 50% of India’s tax-paying population have stagnated over the past decade, effectively halving their purchasing power when adjusted for inflation.
The Impact of AI and Job Market Shifts
The challenges extend beyond stagnating wages. Automation and artificial intelligence (AI) are leading to job displacement, particularly in white-collar roles. “The number of supervisors employed in manufacturing units [as a percentage of total employment] in India has gone down significantly,” notes the Marcellus report.
The Indian government has acknowledged these concerns in its latest economic survey, warning that job displacement due to AI and automation could have significant macroeconomic consequences. Since India’s economy is heavily reliant on consumption, a decline in disposable income among its workforce could derail overall economic growth.
Conclusion
India’s consumer market presents a paradox: while segments of the population are thriving, a vast majority remain excluded from discretionary spending. With rising inequality, a squeezed middle class, and shifting job dynamics, the country faces significant long-term economic headwinds. Businesses must adapt to this evolving landscape by striking a balance between premiumisation and mass-market accessibility, ensuring that India’s economic growth benefits a wider segment of its population.
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