A recent Blume Ventures report indicates that despite India's large population, about one billion people lack discretionary spending ability, leading to a concentration of wealth among the few. With the rich getting richer and the middle class squeezed, the country's economic landscape faces significant challenges ahead.
A Billion Indians Struggle with Discretionary Spending: Insights from Recent Report
A Billion Indians Struggle with Discretionary Spending: Insights from Recent Report
A new report reveals that around one billion Indians have little to no discretionary income, highlighting a growing economic divide in the country.
India, the world’s second-most populous nation, is facing a stark economic reality where approximately one billion of its 1.4 billion population have negligible discretionary funds for spending on goods and services, according to a recent study by Blume Ventures. This figure indicates that the market for potential consumers is limited to about 130-140 million people, roughly equivalent to Mexico's consumer base.
The report categorizes an additional 300 million individuals as "emerging" or "aspirant" consumers, highlighting that while they are beginning to spend, they remain reluctant to open their wallets fully. Rising digital payment adoption has not significantly broadened this consumer segment.
Interestingly, the shift in consumer demographics indicates more about the deepening wealth inequality rather than growth in the consuming class itself. The wealthiest segments of Indian society are amassing more wealth, leaving less room for mass-market offerings and instead accelerating a trend of "premiumisation" where brands focus on higher-end products intended for the affluent. This trend is underscored by the increasing popularity of ultra-expensive goods and luxurious services, juxtaposed against a backdrop of troubling consumption patterns across the broader population.
Evidence of this premiumisation trend is apparent in the sales of high-end real estate and premium electronics, where lower-priced options are faltering. This phenomenon raises questions about the sustainability of catering exclusively to wealthier consumers in a country facing a simultaneous decline in purchasing power among the lower and middle classes.
The report aligns with the perspective that India has experienced a K-shaped economic recovery since the pandemic, where wealth dispersion has widened, leaving many poorer than before. Data shows a troubling rise in income inequality since 1990, evidenced by the wealth concentration in the top 10% of the population, which currently owns over 57.7% of national income.
Moreover, the consumption decline is exacerbated by reduced financial savings and increasing indebtedness among the populace. The Indian central bank’s tightening of unsecured lending practices, which previously buoyed consumption, poses additional risks for future spending.
On a brighter note, a recovery in rural demand due to a good harvest and recent tax benefits from the government could provide short-term relief. However, experts caution that the long-term outlook remains grim, particularly for India's middle class, which has seen stagnant wage growth over the last decade and a half.
Job losses and labor displacement, especially with the rise of artificial intelligence in sectors like IT, pose further risks. A recent economic survey reflects these concerns, indicating that the potential fall in consumer spending could have serious macroeconomic implications for a country heavily reliant on consumption for its growth trajectory.
