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Indian Consumption Growth Story

The Indian economy is at a crossroads yet again. The country’s second wave of COVID-19 had ramifications across the economy as well as on people’s personal lives and mental spaces, and it exposed the country’s widening wealth and poverty gap. According to the data, such inequalities are having an effect on the economy’s medium and long-term growth prospects.

Since economic liberalisation, the Indian growth story has been largely consumption-driven, heralding the emergence of a new Indian economy that has transitioned from a supply-constrained to a demand-constrained one.

The Fourth Industrial Revolution and more than one billion first-time consumers will reshape India over the next decade. Consumer spending is expected to grow fourfold by 2030. It will continue to be one of the world’s youngest countries, with over one billion internet users. The new Indian consumer will be wealthier and more willing to spend, and she will have very specific preferences, unlike her predecessors.

The Future of Consumer Market: India
1. The Indian middle class will truly emerge.

By 2030, India’s economy will shift from one dominated by the bottom of the pyramid to one dominated by the middle class. By 2030, nearly 80% of households will be middle-income, up from about 50% today. In 2030, the middle class will account for 75% of consumer spending.

2. Rising income mobility will fuel growth in all consumption categories.

As 140 million households enter the middle class and another 20 million enter the upper crust, they will spend 2-2.5 times more on necessities (food, beverages, apparel, personal care, gadgets, transportation, and housing) and 3-4 times more on services (healthcare, education, entertainment and household care).

Upper-middle-income and high-income entrants will drive a 15-20% increase in the ownership of durables (washing machines, refrigerators, TVs and personal vehicles).

3. Half the incremental rupees will go into buying more, the rest nearly equally into buying better and buying new

Half the incremental consumer spend by 2030 will be simply to buy more of the products and services being consumed today. Affordable options will continue to be important. The remaining half will be split nearly equally on upgrading to premium offerings and including new variants in existing routines, such as adding organic food items and a new skincare regime, or adopting app-based ride-sharing. Premiumization and category addition will drive a significant share of incremental spend on eating (food and beverages at home, and dining out), looking good (personal care and apparel) and staying connected (cellphones, data packs and gadgets).

4. Aspirations are rapidly converging in urban and rural India, and improved access will convert this intent into actual spending.

The internet and smartphones have significantly reduced the information gap between urban and rural Indian consumers. Beyond the top 40 cities, developed rural and small urban towns already have income profiles that are very similar. Both of these consumer groups desire a similar standard of living, aspire to a similar set of brands, and are equally at ease with technology-enabled consumption at a given income level. Rural India’s strong desire to consume is currently hampered by a lack of access to roads, electricity, organised retail, and financial services. Future efforts to improve physical and digital connectivity, as well as the use of novel distribution channels, will improve well-being and unlock the potential.

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5. Millennial and Generation Z preferences will significantly shape the market

These consumers will be able and willing to spend more money, but they will also be more finicky. In 2030, 77% of Indians will have been born between the late 1980s and the early 1990s. This generation of consumers will have been exposed to a broader range of product and service options than their forefathers. These younger Indians are already the most willing to increase their spending over the next ten years, but they are also extremely picky about what they consider “best in class” offerings in every consumption category, from apparel to automobiles. Businesses will have more wealthy, willing buyers, but these buyers will be well-informed and make very specific decisions for themselves and their families.

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6. Digitally influenced consumption will become the norm

Even at the same income level, “connectedness” will cause a significant difference in preferences. Across income levels, as many as 50-70 percent of the most digitally connected consumers today use digital platforms for product discovery and pre-purchase research. By 2030, more than 40% of all purchases will be heavily influenced by digital channels, up from 20-22% today.

Traditional drivers of preferences have been income and age, but in the future, preferences will be significantly influenced by a consumer’s level of connectedness to digital media and online platforms. At the same income level, the more “connected” consumer (via internet and smartphone) will spend wisely, own durables, premiumize to better products (in accordance with her income), and be well-versed in the brands that best serve her needs. Her less connected counterpart is more likely to spend sparingly, own few durables, and buy more of the same.

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7. India’s eternal hunt for value will aid the growth of e-commerce, ‘value for money’ brands and category extensions

Indian consumers will be willing to adopt value-for-money brands with “just right” features and prices. India’s new consumers want to consume more (and have the means to do so), but they are dispersed across tens of thousands of urban and rural towns. Asset-light e-commerce models, backed up by offline partnerships and demand aggregators, will enable brands to test and enter these new markets at a low cost. Businesses will also be able to free up funds for new category extensions.

Dining out, for example, will become a significant portion of food and beverage spend (up from more than 10% today), driven by the increasing use of app-based meal deliveries to replace home-cooked meals, particularly among upper-middle-income and high-income working consumers. One in every four of these consumers has already begun to increase their entertainment spending in order to subscribe to digital video-streaming services. Affordable and innovative options can unlock massive incremental spend and establish new consumption variants in many existing categories.

8. New business models enabled by technology will capitalise on people's inherent comfort with 'usership,' as well as their desire for greater convenience and well-being.

India, as the world’s first usership economy, has lessons to teach the rest of the world. Indians have traditionally preferred public transportation to owning a vehicle, and they have furnished their homes with low-cost second-hand furniture rather than new purchases. Digital platforms for renting and sharing will appeal to this usership mindset as well as future consumers’ technological savvy. Subscription models, such as today’s Bombay Shaving Club, Amazon India Grocery Pantry, and Fab Bag, will cater to the value-conscious Indian who wants to try new brands and products for a low monthly fee. The desire for greater well-being for themselves and their families will be met by digital platforms for health and learning.

9. Business, policy and civic society leaders will collectively drive an inclusive, healthy and sustainable future for India
India presents a host of exciting business opportunities in the next decade. At the same time, the next phase of India’s growth story offers stakeholders a chance to shape a path of responsible and equitable growth, from which other fast-growing markets can learn. Building on the momentum of collaborative efforts such as Skill India and Eat Right India, public-private-civic-society partnerships can help tackle the three key societal challenges facing India today: the need for skills and jobs for its working age majority; the greater inclusion of rural India; and the building of a healthy and sustainable future for its citizens and cities.
10. Firms will thrive by innovating for India and embracing a 'founder’s mentality'

Companies will go a step beyond replicating Western models at low costs; they will localise and personalise business models and product/service offerings according to the unique preferences and constraints of their Indian consumer. In the past, companies that have sustained growth in India have been ones with an insurgent mission, frontline obsession and strong owner’s mind-set. This “founder’s mentality” will be a critical capability for the future, for small and established businesses alike. Entrepreneurial and agile organizations will be best positioned to capture the full potential of consumption opportunities in the vibrant and diverse market that is India.

India in 2030 will be a playground for growth and innovation for consumer businesses – both Indian and global, established and emerging. The transformations in the Indian consumer’s income, propensity for consumption, awareness and tech-savviness will create massive opportunities. India in 2030 will also be a platform for stakeholders to shape a path of inclusive and responsible growth, for fast-growing markets across the world to follow.

Final Verdict

India will remain one of the world’s most dynamic consumption environments, propelled by five major drivers: income growth; steady and dispersed urbanisation; favourable demographics; technology and innovation; and evolving consumer attitudes. Many stakeholders have the potential to shape India’s positive consumption future as these drivers propel the country forward. Both the private and public sectors can ensure an inclusive and responsible future of consumption in India by sharing accountability.  There are opportunities for businesses to serve India’s 1 billion+ consumers through innovative and inclusive business models, which are backed up by a favourable policy environment from the government. Key actors, such as academia and civic institutions, have a significant role to play in ensuring the well-being of Indian citizens and driving inclusive growth. Working together, these stakeholders can contribute to the creation of a future that benefits both consumers and society.

The time is ripe for these stakeholders to come together and address head-on the most pressing societal challenges facing. India today – skilling and job creation, socio-economic inclusion of rural India, and building a healthy and sustainable future for its citizens. Collaborative efforts to address these challenges will unlock the full potential of a young, connected and thriving nation, and establish India as a model for fast-growing consumer markets of the world.

About Author

Picture of Vinayak Savanur

Vinayak Savanur

Founder & CIO at Sukhanidhi Investment Advisors, a SEBI registered equity investment advisory firm. He has nearly a decade of experience in the stock markets and has been a holistic financial planner.

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