Billion Indians Lack Disposable Income, Report Reveals
India’s Consumer Class Remains Small Despite Its Massive Population
India, a country with 1.4 billion people, has a surprisingly limited consumer base, according to a new report by venture capital firm Blume Ventures. The study highlights that nearly a billion Indians do not have disposable income to spend on discretionary goods or services.
The report estimates that the nation’s true "consuming class"—those with significant spending power—consists of just 130-140 million people, comparable to the population of Mexico. An additional 300 million fall into the "emerging" or "aspirant" category, meaning they have some capacity to spend but remain cautious consumers, slowly adapting to digital payments and modern purchasing habits.
Narrowing Consumer Base and the Rise of Premium Products
Instead of expanding in size, India’s affluent class is "deepening"—meaning the number of wealthy individuals is not significantly increasing, but those who are already rich are growing wealthier. This shift is reshaping the consumer market, fueling a trend known as "premiumisation," where businesses focus on high-end products rather than mass-market offerings.
Luxury real estate and premium smartphones are seeing record sales, while their lower-end counterparts struggle. Affordable housing, which made up 40% of India’s real estate market five years ago, now accounts for just 18%. Similarly, branded goods are gaining a stronger foothold, and India's "experience economy" is booming, with expensive event tickets—such as concerts by global artists like Coldplay and Ed Sheeran—selling rapidly.
Companies catering to the premium segment have thrived, while those targeting the mass market have struggled. “Businesses that haven't adapted their product mix to the premium segment have lost market share,” said Sajith Pai, one of the report’s authors, in an interview with the BBC.
Growing Wealth Gap and Economic Challenges
The report reinforces the idea that India's economic recovery after the COVID-19 pandemic has followed a K-shaped trajectory—where the rich have prospered while the poor have struggled. However, this trend predates the pandemic, with income inequality widening for decades. The top 10% of Indians now control 57.7% of the country's income, up from 34% in 1990, while the bottom 50% have seen their share shrink from 22.2% to 15%.
This widening gap has intensified economic struggles for the lower and middle classes. Household savings are near a 50-year low, and rising debt levels are further straining financial stability. Additionally, the Reserve Bank of India (RBI) has tightened regulations on unsecured lending, which had previously fueled spending among lower-income groups. “With this credit source drying up, consumption is bound to be affected,” Pai noted.
Short-Term Relief but Long-Term Concerns
In the immediate future, two factors could provide a slight boost to spending: a strong rural harvest and a $12 billion tax relief package from the recent budget. While not a game-changer, these measures could lift India's GDP—heavily reliant on consumption—by over half a percentage point, according to the report.
However, deeper economic challenges persist. Data from investment firm Marcellus Investment Managers indicates that India’s middle class is shrinking, with wages largely stagnant over the past decade. After adjusting for inflation, this means real incomes have effectively halved, weakening savings and reducing discretionary spending.
Automation and artificial intelligence (AI) are further disrupting the workforce, particularly white-collar jobs in urban areas. The number of supervisors in manufacturing has declined significantly, reflecting a broader trend of job displacement due to technological advancements.
India's Economic Survey has also flagged these risks, warning that job losses from AI and automation could have far-reaching consequences. With India being a consumption-driven economy, a decline in spending due to job displacement could significantly impact growth. “If worst-case projections materialize, this could derail the country’s economic trajectory,” the survey cautioned.
Despite short-term measures to boost demand, the report underscores a stark reality: India's consumer market remains limited, with growing wealth disparity and economic uncertainty shaping its future.
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