With over 1.4 billion population, India is one of the most active and largest consumer markets in the world. As per UBS, after passing Japan and Germany, India is set to become the third-largest consumer market by 2026, while being behind the US and China. According to PWC, by 2027, India’s consumer market is poised to become the world’s third largest owing to factors such as growth in income of middle- and high-income households, expanding rural markets, improved reach bolstered by both digital and physical infrastructure, and growing consumer aspirations.
India stands out as a burgeoning consumption environment, which is demonstrated by the 60% contribution of private consumption to GDP in 2023 (comparable to the global growth average of around 63%). Projections indicate that by 2031, India is expected to have an Rs 426.4 lakh crore consumption economy, growing at a CAGR of 13.4% from 2023 to 2031. This growth could be propelled by incremental consumption by the Indian middle class, increased urbanisation, and a growing percentage of the young populace with rising aspirations.
In India, the salaries of individuals over the past six years (between 2019 and 2024) have been increasing year-on-year at a rate of over 9.1%. This consistent growth in income levels among Indians has been a key driver of increased household consumption and could have also contributed to driving demand for various goods and services. However, according to RBI data this trend occurs amidst a backdrop of Indian households experiencing a decline in their financial assets which now stand at 5.1% of the country’s GDP in 2023. This is down from 7.2% in 2022 – the lowest levels seen in the last 50 years.
While average salaries vary depending on factors such as job type, function, industry and city, it is crucial to consider the parallel rise in debt and borrowings among Indian households. As of September 2024, the total outstanding amount for personal loans is Rs 55.3 lakh crore with a year-on-year growth rate of 13.7%. Home loans observed a slower year-on-year rate of 12.8% and have a total outstanding amount of 28.1 lakh crore.
Secondly, employment and job security situation has improved. Between the years 2017–19 and 2022–23, the employment rate has grown from 46.8% to 56%, while the unemployment rate declined from 6% to 3.2%. This increased employment rate can lead to increased consumer spending among individuals, driven by factors such as increased disposable income, financial stability, and increased demand for education, healthcare, and other discretionary products and services.
Additionally there are technical factors also working. As the widespread availability of affordable smartphones and accessible telecom services has enabled over 82 crore Indians to access the internet, with the percentage of smartphones in actual use exceeding 72% of the total population. This growth is occurring amidst a digital literacy rate of 38%, with urban literacy rates being relatively high at 61%. FS has capitalised on this trend by providing services through web and mobile applications, thus fuelling a personal credit boom. The growth of e-commerce, which is being fuelled by growing access to the internet and smartphones, has revolutionised the consumer shopping experience. For instance, e-commerce sales in India which is currently (2024) at Rs 4,41.7 thousand crore are expected to grow at a potential CAGR of 11.45% in the period between 2024 and 2029, to reach a value of Rs 7,59.2 thousand crore.
The rapidly expanding Indian consumer market faces a few challenges that can also be viewed as opportunities to further enhance growth. However there are certain economic factors like, according to the RBI, retail inflation stood at 5.6% for the year 2023–24. This increased inflation level can potentially have an adverse impact on the growth of discretionary spending, as consumers may cut back on non-essential items when prices rise. However, according to the RBI, the inflation level is expected to decrease to 4.6% for 2024–25. This anticipated reduction in inflation levels could boost consumption patterns and thereby foster further economic growth.
Government policies and regulations have the potential to impact consumer spending, borrowing and investment decisions. Streamlining tax structures such as GST can impact the pricing of products being bought by consumers, thereby impacting their purchasing decisions. Regulations related to the quality and safety of products can also influence consumer spending as consumers would spend more on products that comply with specific regulatory and quality standards.
India’s consumer market presents great opportunities with a large population, a growing middle class, rising disposable incomes and growing aspirations. The rising disposable income is boosting discretionary consumption, which is an opportunity for electronics, durables, and other aspirational industries. As the country moves towards the path of development, the consumer spending will remain a key indicator of the nation’s progress.
