No Money to Spend

India is home to 1.4 billion people, but around a billion lack money to spend on any discretionary goods or services, a new report estimates. The country’s consuming class, effectively the potential market for start-ups or business owners, is only about as big as Mexico, 130-140 million people.

Another 300 million are “emerging” or “aspirant” consumers, but they are reluctant spenders who have only just begun to open their purse strings, as click-of-a-button digital payments make it easy to transact.

What is more, the consuming class in Asia’s ‘third-largest economy’ is not “widening” as much as it is “deepening”, according to the report. That basically means India’s wealthy population is not really growing in numbers, even though those who are already rich are getting even wealthier.

All of this is shaping the country’s consumer market in distinct ways, particularly accelerating the trend of “premiumisation” where brands drive growth by doubling down on expensive, upgraded products catering to the wealthy, rather than focusing on mass-market offerings.

The report’s findings bolster the long-held view that India’s post-pandemic recovery has been K-shaped–where the rich have got richer, while the poor have lost purchasing power.

In fact, this has been a long-term structural trend that began even before the pandemic. India has been getting increasingly more unequal, with the top 10% of Indians now holding 57.7% of national income compared with 34% in 1990. The bottom half has seen its share of national income fall from 22.2% to 15%.
The latest consumption slump, however, has deepened amid not just a destruction in purchasing power, but also a precipitous drop in financial savings and surging indebtedness among the masses.

In the short run, two things are expected to help boost spending–a pick-up in rural demand on the back of a record harvest and a $12 billion tax giveaway in the recently concluded budget. It will not be “dramatic” but could boost India’s GDP, largely driven by consumption, by over half a percent. But major longer-term headwinds remain.

India’s middle class, which has been a major engine for consumer demand, is being squeezed out, with wages pretty much staying flat, according to data compiled by 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],” says the report, published in January.

The Marcellus report also points out that white-collar urban jobs are becoming harder to come by as artificial intelligence automates clerical, secretarial, and other routine work.

 Labour displacement as a result of these technological advancements is of particular concern for a mainly services-driven economy like India, where a significant share of the IT workforce is employed in low-value-added services sectors that are most prone to disruption.

[Contributed by N Inamdar]

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Frontier
Vol 57, No. 44, Apr 27 - May 3, 2025