India's consumer market faces deepening challenges as wealth inequality widens

India’s booming population of 1.4 billion is home to a rapidly expanding affluent class, but a startling report reveals that nearly a billion people remain unable to spend on discretionary goods and services. 

The country’s active consumer base, critical for businesses and startups, is much smaller than expected. Only 130-140 million people—comparable in size to Mexico—are considered part of India’s consuming class. Meanwhile, around 300 million people are classified as “emerging” or “aspirant” consumers. However, these individuals are hesitant to make purchases, despite the growing ease of digital payments, which has simplified transactions.

The Blume Ventures report notes that India’s consumer market is not “widening” but rather “deepening.” While the number of affluent individuals remains relatively stable, the wealthy continue to amass greater wealth. This dynamic is fueling the growing trend of “premiumisation” within the consumer sector. Brands are increasingly targeting high-end, upgraded products to cater to the affluent, instead of focusing on mass-market options.

This shift is evident in the soaring sales of ultra-luxury gated communities and premium smartphones, while more affordable models are struggling. Affordable housing now makes up only 18 per cent of India’s overall market, down significantly from 40 per cent five years ago. Branded goods are also capturing a larger market share, while the "experience economy" thrives, with high-priced tickets for concerts by international artists like Coldplay and Ed Sheeran selling out quickly.

Sajith Pai, one of the authors of the report, shared with the BBC that companies adapting to these shifts have seen success. "Those who are too focused at the mass end or have a product mix that doesn't have exposure to the premium end have lost market share," he stated.

The report’s findings reinforce the long-standing view that India’s post-pandemic recovery has followed a K-shaped pattern—where the wealthy have become richer, while the poorer segments of society have lost purchasing power.

This trend has been developing for years, well before the pandemic. The top 10 per cent of Indians now control 57.7 per cent of the national income, a sharp increase from 34 per cent in 1990. Meanwhile, the bottom half’s share of national income has dropped from 22.2 per cent to 15 per cent.

The ongoing slump in consumption has been exacerbated by a decline in purchasing power, a sharp drop in financial savings, and rising debt levels among the population. The central bank’s crackdown on unsecured lending, which had bolstered demand following the Covid pandemic, is also contributing to the slowdown.

Pai noted that much of the consumption spending from the “emerging” or “aspirant” class was driven by borrowing. “Turning off that tap will definitely have some impact on consumption,” he said.

However, there are some short-term factors that could help boost spending. A record harvest could drive rural demand, and the $12 billion tax giveaway in the recently concluded budget may offer some relief. While the boost won’t be "dramatic," Pai suggests it could lift India’s GDP—primarily driven by consumption—by over half a percent.

Despite these potential short-term gains, long-term challenges persist. India’s middle class, historically a major driver of consumer demand, is now facing financial pressure, with wages stagnating over the past decade. According to data from Marcellus Investment Managers, “The middle 50% of India’s tax-paying population has seen its income stagnate in absolute terms over the past decade. This implies a halving of income in real terms [adjusted for inflation].”

This financial strain has eroded the savings of the middle class, with the Reserve Bank of India noting that net financial savings of Indian households are nearing a 50-year low. As a result, products and services aimed at middle-class consumers are expected to face a tough road ahead.

The evolving dynamics of India’s consumer market, marked by growing inequality and changing consumption patterns, are likely to have lasting effects on businesses and the broader economy. As the country navigates these challenges, the future of its consumer-driven growth remains uncertain.

By Naila Huseynova