India is often considered one of the largest consumer markets in the world, but recent reports are challenging this notion. Even though India has a population of more than 1.4 billion, its real consumer class is relatively small.
Small consumer class
According to a report by Bloom Ventures, there are only 13-14 crore people in India who have enough money for other needs separate from compulsory expenses. In addition, around 300 million people fall into the emerging consumer class, but their purchasing power is limited.
According to the report of Performance and PWC India, Indian consumers invest 39% of their total income on mandatory expenses and 32% on necessary expenses. Only 29% of the amount is left for non-essential expenses.
Supreme Court rejected petition on temporary release of Dera Sacha Sauda chief Ram Rahim
Rising income inequality
Economic growth in India is mainly limited to the upper-age class. Bloom Ventures report states that sales of expensive homes and premium smartphones in India are increasing, while affordable houses have come down from 40% to 18%.
The figures showing economic inequality are shocking:
- In 1990, India’s top 10% of the total income share was 34%, which has now increased to 57.7%.
- At the same time, the share of income of lower 50% people has come down from 22.2% to 15%.
Decreased savings and decreasing debt
According to the report of Marcelus Investment Managers, the actual income of the middle class of India has come down in the last decade, which has also reduced their savings rate.
According to the Reserve Bank of India (RBI) report, domestic net financial savings have reached the lowest level in 50 years. Due to economic pressure, many consumers continued the expenses by taking loans without guarantee, but now the RBI has strictly strictly tightened the credit, which can negatively affect consumption.
Middle-incomplete trap threat
The World Bank’s ‘World Development Report 2024’ warns that India may get caught in a middle-incomplete trap. This situation comes when a country does not reach a certain extent of economic growth and converted into a high-oriented economy.
India’s economy is dependent on small and medium businesses, but their chances of growth are limited. 90% of Indian companies have less than five employees, and due to regulatory barriers, they are not being converted into large businesses.
Need economic reforms
India needs major reforms to avoid economic stagnation and promote inclusive growth. According to the World Bank, India:
- Rules should be simplified for small and medium enterprises.
- Availability of credit should increase.
- Innovation and skill development should be encouraged.
If these reforms are not implemented, India may be included in the list of countries that got stuck at the level of moderate-or-come and could not become a high-or-age economy.
