A Billion Indians Struggle With Discretionary Spending: A New Economic Report

According to a recent report from Blume Ventures, a staggering billion Indians have no money for discretionary spending. The divide between the wealthy and lower-income populations is deepening, prompting a shift towards high-end goods while the middle class faces stagnation and reduced purchasing power.

India, a nation of 1.4 billion, has been facing a startling economic reality as a new report reveals that approximately one billion citizens lack disposable funds for non-essential goods or services. This statistic highlights the challenges facing the consumer market in Asia’s third-largest economy, where the "consuming class" has significantly shrunk, roughly mirroring Mexico's population of 130-140 million people.

The report, produced by Blume Ventures, outlines that an additional 300 million individuals are considered "emerging" or "aspirant" consumers. These individuals are beginning to engage with the market but remain hesitant to spend freely due to ongoing financial pressures. In fact, the middle-income segment, a crucial driver of consumer demand, is increasingly being squeezed, with stagnant wages and dwindling savings.

Instead of broadening, the consuming class is deepening, indicating that while the rich are becoming wealthier, the general population’s access to discretionary spending is declining. Luxury markets are thriving, evidenced by soaring sales of high-end housing and premium electronics, while the affordable housing sector has plummeted from 40% of the market to just 18% over the past five years.

According to Sajith Pai, one of the authors of the report, companies who have adapted to this premium-focused landscape are prospering, while those catering to budget-conscious consumers are losing market share. The post-pandemic recovery isn’t benefitting all: the rich are thriving while the less affluent have lost purchasing power.

Recent trends indicate that the country’s income inequality may have intensified. The top 10% of wealth holders now command a shocking 57.7% of national income, contrasting sharply with the declining share of income among the bottom half, which has dropped from 22.2% to just 15%.

Moreover, a reduction in consumer spending appears imminent, with both financial savings decreasing and personal debts increasing. The Indian central bank's crackdown on unsecured lending—a significant contributor to consumption during the COVID-19 pandemic—could hamper spending further.

However, a surge in rural demand driven by a record harvest and a $12 billion tax relief from the recent budget may offer short-term relief, possibly boosting GDP modestly. Yet, long-term challenges loom, particularly for the traditional middle class facing income stagnation and a shrinking number of sustainable white-collar jobs due to advances in artificial intelligence.

The government’s economic survey raises alarms about labor displacement within a service-oriented economy, forewarning that consumption declines related to workforce displacement could have extensive macroeconomic repercussions. If these adverse projections come to fruition, they risk derailing the economic growth trajectory of this populous nation.