Affluent Lead India Consumption Story

Top 4% earners contributing heavily to consumption while the bottom 57% seem to be barely subsisting.

- RAJIV RANJAN SINGH

INDIA IS POISED to become the third-largest consumption market by 2026, says a report by UBS. At present, it is the fifth-largest and one of the fastest-growing economies. At current prices, India’s household consumption nearly doubled between 2013 and 2023 to $2.1 trillion or ₹168 lakh crore (assuming $1 at ₹80) at compound annual growth rate (CAGR) of 7.2%. China’s 10-year CAGR is 7.1%; U.S. is at 5% and Germany at 1%.

Not surprising perhaps considering that in April 2023, India surpassed China to become the most populous country in the world; and a rising population boosts overall consumption. The twist in the tale, however, is the dichotomy in consumption patterns. India shows no sign of diverting from the K-shaped recovery that had started after the pandemic. Top 4% of its earning population is contributing heavily to consumption, while the bottom 57% seems to be barely subsisting.

The Dichotomy

Household consumption, or private final consumption, is 60% of nominal GDP. However, the recovery in consumption after the pandemic has been uneven in terms of discretionary/services spending versus consumer staples; rural versus urban; and premium versus broad-based demand.