India, with a population of 1.4 billion, is often considered a massive market for businesses and startups. However, a recent report by venture capital firm Blume Ventures paints a starkly different picture. According to the report, nearly one billion Indians lack the financial means to spend on discretionary goods and services, limiting the actual consuming class to just 130-140 million people—comparable in size to Mexico.
With another 300 million categorized as “emerging” or “aspirant” consumers, the country’s consumer market is not expanding in breadth but rather deepening, where the rich continue to grow wealthier while the majority struggle to keep up. This trend is reshaping India’s economy, with a rising focus on premium products rather than mass-market goods.
India’s Shrinking Middle Class and the Rise of Premiumisation
The report highlights that India’s consumer market is increasingly catering to the wealthy, a phenomenon known as “premiumisation.” Rather than widening its base, consumption is becoming concentrated among a smaller affluent segment. This is evident in the soaring sales of luxury housing, high-end smartphones, and expensive event tickets, while affordable goods struggle to find buyers.
For instance, affordable housing has shrunk to just 18% of India’s real estate market, down from 40% five years ago. Branded and premium products are gaining dominance across industries, reflecting a shift where businesses that fail to cater to this premium segment risk losing market share.
A K-Shaped Recovery: The Rich Get Richer, the Poor Struggle
The findings support the long-standing observation that India’s economic recovery post-pandemic has followed a K-shaped trajectory. While the affluent have seen their wealth and consumption power surge, the majority have witnessed a sharp decline in purchasing power.
The economic divide is not a new development but a deepening trend. In 1990, the top 10% of Indians held 34% of national income; today, they control nearly 58%, while the bottom 50% has seen its share shrink from 22.2% to just 15%.
This widening inequality is exacerbated by increasing indebtedness and a drastic drop in household financial savings, now approaching a 50-year low. With the Reserve Bank of India tightening unsecured lending, spending among lower and middle-income groups has been further curtailed.
Will Short-Term Stimuli Help?
Despite the challenges, two short-term factors might provide some relief. A record agricultural harvest is expected to boost rural demand, and a $12 billion tax relief package announced in the latest budget could help increase spending power slightly.
Economists predict these measures may lift India’s GDP growth by around 0.5%, but the impact is unlikely to be dramatic given the deep-rooted structural issues affecting consumption trends.
The Decline of India’s Middle Class
One of the most concerning revelations is the stagnation of India’s middle class, traditionally the engine of consumer demand. According to data from Marcellus Investment Managers, the middle 50% of India’s taxpayers have seen their income remain flat over the past decade. When adjusted for inflation, this translates to a significant decline in real income. As a result, middle-class household savings have been “decimated,” according to the report. The decline in disposable income and savings means products and services catering to this segment will likely struggle in the coming years.
Job Market and Technological Disruption
Adding to the economic strain is the growing impact of artificial intelligence and automation on employment. White-collar jobs, especially in clerical and routine tasks, are disappearing. The percentage of supervisory roles in manufacturing has declined, further limiting income opportunities.
The government’s latest economic survey also raises concerns about labor displacement due to technological advancements, particularly in a service-driven economy like India. If these trends continue unchecked, they could significantly disrupt India’s consumption-driven growth model.
India’s economic landscape is undergoing a transformation where consumption power is becoming increasingly concentrated among the wealthy. While short-term interventions may provide some relief, deeper structural issues such as income stagnation, rising debt, and job displacement pose long-term risks.
For businesses and policymakers, the challenge remains: how to revive the spending power of the majority and ensure sustainable economic growth that benefits all, not just the privileged few. If these disparities are not addressed, India’s growth trajectory could face significant roadblocks in the years to come.
(With inputs from agencies)
