India: A billion people have no real money to spend, says report

India is home to 1.4 billion people, but around a billion among them don’t have enough money to spend on any discretionary goods or services, a new report estimates.

The government’s consuming group, which is essentially the potential marketplace for start-ups or company owners, is only about as big as Mexico- 130-140 million people- according to the report from Blume Ventures, a venture capital firm.

There are another 300 million “emerging” or “aspirant” users, but they are afraid purchases who’ve only just begun to open their wallet cords, as click-of-a-button electronic payments make it easy to trade.

What’s more, the consuming group in Asia’s third largest market isn’t “widening” as much as it is “deepening”, according to the document. Which basically means that India’s inhabitants of rich people isn’t actually growing, yet though those who are already wealthy are becoming even wealthier.

All of this is shaping the country’s buyer market in different ways, especially accelerating the trend of “premiumisation” where brands drive growth by doubling down on cheap, upgraded products catering to the rich, rather than focusing on mass-market offerings.

This is obvious in zooming income of ultra-luxury gated housing and advanced devices, also as their lower-end variations challenge. Comparing affordability to 40 % five years ago, only 18 % of India’s overall market is now made up of affordable homes. Additionally, marketed products are capturing a larger share of the market. And there are rising “experience economies,” with cheap tickets for shows by famous musicians like Coldplay and Ed Sheeran selling like hot sweets.

Companies that have adapted to these transitions have thrived, Sajith Pai, one of the article’s artists, told the BBC. ” People who are overly focused on the mass market or have a product mix without a prime business share lose marketplace share.”

The study’s findings boost the long-held watch that India’s post-pandemic recovery has been K-shaped- where the wealthy have gotten richer, while the bad have lost purchasing power.

In fact, this has been a long-term structural trend that began even before the pandemic. The top 10 % of Indians now account for 57.7 % of the country’s income, up from 34 % in 1990, as inequality grows. The bottom half, meanwhile, have seen their share of national income reduce from 22.2 % to 15 %.

The latest consumption slump, however, has deepened amid not just a destruction in purchasing power, but also a precipitous drop in financial savings and surging indebtedness among the masses.

The central bank of the nation has also stepped down on simple unsecured lending, which increased demand following the Covid pandemic.

Much of the consumption spending of the “emerging” or “aspirant” class of Indians was led by such borrowings and “turning off that tap will definitely have some impact on consumption”, said Pai.

In the near future, two things are anticipated to spur spending: a record-breaking increase in rural demand and a$ 12 billion tax give-away in the recently finished budget. It won’t be “dramatic”, but could boost India’s GDP- largely driven by consumption- by over half a percent, says Pai.

But major longer-term headwinds remain.

According to data compiled by Marcellus Investment Managers, India’s middle class, which has been a major driver of consumer demand, is being squeezed out, with wages essentially staying flat.

“The middle 50% of India’s tax-paying population has seen its income stagnate in absolute terms over the past decade. This implies a halving of income in real (adjusted for inflation) terms,” according to the report, published in January.

The RBI [ Reserve Bank of India ] has repeatedly stated that the net financial savings of Indian households are approaching a 50-year low.” This financial hammering has decimated the middle class’s savings. This pounding “implys that products and services associated with middle-class household spending will likely face a difficult time in the years to come,” it continues.

The Marcellus report also makes the case that as artificial intelligence automates clerical, secretarial, and other routine tasks, white-collar urban jobs are becoming more difficult to come by. ” The number of supervisors employed in manufacturing units ( as a percentage of all employed ) in India has gone down significantly”, it adds.

The government’s recent economic survey has flagged these concerns as well.

It claims that a significant portion of the IT workforce is employed in low value-added services sectors, which are most prone to disruption, that are of particular concern as a result of these technological advancements.

” India is also a consumption-based economy, thus the fall in consumption that can result from the displacement of its workforce is bound to have macroeconomic implications. If the worst-case projections materialise, this could have the potential to set the country’s economic growth trajectory off course”, the survey said.

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