“India’s consumption story reflects a significant divide, driven by a resilient economy but characterized by a stark contrast in spending patterns” Jain said. “Despite India’s trajectory to become the world’s third largest consumer market by 2026, the divergence between affluent and broad-based household demand persists, accentuated by factors such as income inequality, increased consumer credit access, and declining household savings. Consequently, we anticipate household consumption growth in FY25/26E to remain subdued at 4-5% year-on-year, below the trend observed in previous years,” the report said.
Although broad household consumption growth remained muted in the last two years, affluent Indian consumer demand significantly increased, the report said. India is expected to outpace Germany (in 2024) and Japan (in 2026) and become the third largest consumer market in the world.
As of 2023, there were an estimated 40 mn people in India in the affluent category (annual income > $10,000) with four percent share in population of 15 years and above and these will likely more than double in the next five years. Moreover, India’s sizeable domestic market that can absorb manufacturing output is one of the key advantages versus its Asian peers
India is also expected to benefit from ‘China+1’ supply chain shifts besides policy initiatives and structural reforms. “However, we believe high-quality job creation would be required to sustain consumption growth in the medium-term,” the report said.India is on track to become the world’s third largest consumer market by apparent dichotomy between household consumption and real GDP growth. The country’s economic growth recovered strongly from the pandemic, partly driven by robust domestic demand.However, since mid-2022 investments and real GDP growth have recovered much faster than consumption. This divergence matters for the Indian economy as household consumption accounts for a 60 percent share of nominal GDP, he report said.
