India, a nation of nearly 1.4 billion people, is often perceived as a massive consumer market ripe with opportunities. However, a close examination of consumption trends reveals a far more concerning picture. A new report fromBlume Ventureshighlights that nearly a billion Indians lack the disposable income necessary for discretionary spending, leaving only about 130-140 million individuals a population comparable to Mexico as the true consuming class. This stark economic reality raises significant concerns about the sustainability of Indias consumer-driven growth narrative.

A Narrowing Consumer Market

While an additional 300 million Indians are classified as emerging or aspirant consumers, their spending habits remain cautious. The advent of digital payment systems has facilitated transactions, but these consumers are only beginning to open their wallets. More troubling is the finding that Indias consuming class is not widening but deepening. This means that while the wealthy are accumulating more wealth, the overall size of the affluent consumer base is not expanding at the expected rate.

This trend has resulted in an increased focus on premiumisation brands are shifting their strategies towards catering to the affluent few rather than the broader population. The impact of this shift is evident in the booming sales of ultra-luxury gated housing and premium smartphones, while lower-end variants struggle to find buyers.

The share of affordable homes in Indias overall housing market has plummeted from 40% five years ago to just 18% today. Similarly, branded goods are claiming a larger market share, and the experience economy marked by the selling out of exorbitantly priced events of international artists such as Coldplay and Ed Sheeran is flourishing, despite the high ticket costs.

The Widening Inequality

The report further reinforces the widely accepted notion that Indias post-pandemic economic recovery has been K-shaped where the rich have become wealthier while the lower-income groups have suffered a decline in purchasing power. However, this trend predates the pandemic and therefore highlights a deeper, structural issue. Since 1990, Indian has significantly more unequal. The top 10% of the population now controls around 57.7% of the national income, up from 34% in 1990, whereas the bottom 50% has seen its share shrink from 22.2% to just 15%.

A major contributor to this widening wealth gap is the stagnation of middle-class incomes. According to data from Marcellus Investment Managers, wages for the middle 50% of Indias tax-paying population have remained flat in absolute terms over the past decade, effectively halving their real-time income when adjusted for inflation. 

This financial strain has led to a drastic decline in household savings with the Reserve Bank of India (RBI) warning that net financial savings among Indian households are approaching a 50-year low. As a result, products and services traditionally associated with middle-class consumption are likely to face significant challenges in the coming years.

Job displacement

The middle-class squeeze is further exacerbated by job losses and stagnation in the white-collar employment.The Marcellus reporthighlights that AI and automation are increasingly replacing clerical, secretarial, and other routine roles, leading to a reduction in supervisory positions within the manufacturing sector.

Thegovernments recent economic surveyhas also raised alarms about labor displacement, particularly in Indias service-driven economy, where a large portion of the workforce is engaged in low-value-added IT services that are most susceptible to technological disruption.

This shift in employment dynamics poses a significant threat to Indias long-term economic stability. As the country relies heavily on domestic consumption, a decline in disposable incomes due to job losses and automation could have severe macroeconomic implications. Indias economic growth trajectory is expected to be severely disrupted if these worst-case projections materialize, threatening the aspiration of millions who are already struggling to maintain their financial standing.