India shows serious affluenza symptoms

The Goldman has spoken. According to the Goldman Sachs report, ‘Affluent India‘, released last week, Indians earning more than $10,000 annually will number 100 million in the next three years, from its current 60 million. In absolute numbers, we are looking at a nation that is rich, if not yet a rich nation. India’s consumption growth at either end of its income spectrum is diverging even after the wealth redistribution effects of the pandemic recede. This follows the underlying divergence in real incomes, which has been opening up. Less than 5% of Indian consumers have incomes approaching upper-middle-income country thresholds. But this cohort is growing at rates much faster than any other segment of the consumption pyramid. This is driving the growth of aspirational brands as well as premium offerings in product portfolios of companies. Producers are using their consistent pricing power in this segment to cross-subsidise and promote consumption lower down the income scale. Thus the eight pick-up stocks by Goldman for being ‘high-quality businesses with strong competitive advantages, proven track records of past performance and market leadership within their segments’.

The role of an affluent tip in overall consumption depends both on its critical mass and the intensity of consumerism. On either count, India’s top cohort trails in international comparison. Structural factors driving income divergence will drive up the numbers. But deeper income and wealth effects would be required to attain spending intensity. India’s growth outperformance should be able to sustain the effects of the income effect.

The economy is swivelling to the needs of big spenders, be it for SUVs, condominium living, branded healthcare, high-end holidays or ordering in fine dining. This demand has considerable linkages in manufacturing and services industries, which can offer bridge value offerings like premium economy air travel and crossover automobiles. Pure lifestyle consumption is still some way off. But India is, indeed, stricken by affluenza.