A recent report suggests that out of India’s population of 1.4 billion, approximately one billion people lack the financial means to spend on non-essential goods and services. According to the report by Blume Ventures, a venture capital firm, the country’s consumer class, potential targets for startups and business owners, is comparable in size to Mexico, totaling around 130-140 million individuals.
An additional 300 million individuals in India fall into the categories of “emerging” or “aspirant” consumers. While they are starting to spend due to the convenience of digital payments, they remain cautious spenders. The report highlights that the consumer class in India is not growing in width but rather in depth, signifying that the affluent segment is becoming wealthier without a significant increase in their numbers.
This trend is reshaping India’s consumer market, emphasizing the rise of “premiumization.” Companies are focusing on high-end, upscale products to cater to the wealthy, rather than mass-market offerings. As a result, sales of luxury properties and premium gadgets are soaring, while affordable options are facing challenges. Branded products are gaining more traction, and the “experience economy” is flourishing, with pricey tickets for events like international concerts selling rapidly.
According to the report, businesses that have adapted to these changes are thriving, while those focusing solely on the mass market are losing ground. It reinforces the idea that India’s recovery post-pandemic follows a K-shaped pattern, with the rich becoming wealthier while the less affluent lose purchasing power.
This inequality has been a persistent trend even predating the pandemic, with the top 10% of Indians holding a significant share of national income. The pandemic has exacerbated the situation, leading to a decline in consumer spending, savings, and an increase in debt among the general population.
While short-term measures like a rise in rural demand and tax incentives may boost spending and GDP growth slightly, long-term challenges loom large. India’s middle class, historically a key driver of consumer demand, is facing stagnating wages, signaling a potential decline in purchasing power for a significant portion of the population.
The financial landscape in India has experienced a significant downturn in recent years, with a report indicating a concerning stagnation in income levels over the past decade. This stagnation has translated to a stark reduction in real income, effectively slicing in half the purchasing power of individuals after accounting for inflation. The repercussions of this economic crunch have been particularly hard-hitting for the middle class, as their savings have been ravaged, plummeting to levels not seen in nearly half a century, according to data from the Reserve Bank of India.
The implications of this financial upheaval extend beyond individual households, with broader implications for the economy as a whole. The Marcellus report highlights the challenges faced by white-collar urban workers, as advancements in artificial intelligence have led to the automation of clerical and secretarial roles, making traditional job opportunities increasingly scarce. This shift is evident in the dwindling number of supervisors in manufacturing units across the country, signaling a fundamental transformation in the labor market.
The evolving economic landscape has not gone unnoticed by the government, as evidenced by the concerns raised in the recent economic survey. Of particular worry is the displacement of labor due to technological advancements, a trend that poses a significant threat to India’s services-driven economy. With a substantial portion of the workforce employed in low value-added sectors that are most susceptible to disruption, the potential for widespread job displacement looms large, casting a shadow over the country’s economic growth prospects.
India’s status as a consumption-based economy further exacerbates the potential fallout from labor displacement, as any decline in consumer spending could have far-reaching macroeconomic consequences. The economic survey underscores the gravity of the situation, warning that a worst-case scenario could derail the country’s economic trajectory, underscoring the urgent need for proactive measures to address these challenges.
As India grapples with these economic uncertainties, vigilance and foresight will be crucial in navigating the turbulent waters ahead. Stay informed with the latest updates on this unfolding story by following BBC News India on Instagram, YouTube, Twitter, and Facebook.
