India’s Rs 65-lakh crore consumer market set to skyrocket, eyeing top 2 global spot in the next two decades

Currently valued at over $800 billion, India’s consumer market ranks behind the US, China, Germany, and Japan. While it has maintained this position for some time, projections indicate that consumer spending in India will surge over the next decade. According to a recent estimate by market intelligence firm Fitch Group’s BMI Research, India is set to become the third-largest consumer and retail market by 2027, surpassing Germany and Japan. The market is expected to achieve a remarkable 25% compound annual growth rate (CAGR), crossing the $1-trillion threshold by 2027 and reaching $2 trillion by 2032. While precise forecasts for 2047 remain uncertain, experts largely agree that India’s consumer market is expected to emerge as one of the Top 2 globally, with the potential to surpass the US, thereby underscoring the inherent aspirations present in the Indian economy.

Consider the scale of India’s consumer market: with 435 million consumers, it is currently second only to China’s 899 million. The US, despite being the largest economy, ranks third with a consumer base of 240 million. According to the IMF, a consumer is defined as someone who spends at least $12 (at purchasing power parity) per day.

By the end of the decade, while China is projected to add around 200 million new consumers, India’s growth will outpace all other economies. The numbers from IMF bear this out. By 2030, India’s consumer market is expected to expand to over 750 million, adding more than 300 million new consumers. Experts also point out that a significant driver of this growth will be India’s young population. With one-third of its population aged between 20 and 33 years—who tend to spend more on discretionary items like electronics, beauty, automobiles, and so on—Indian household spending is set to surpass that of other developing economies such as Indonesia, Thailand, and the Philippines, with a year-on-year growth rate of 7.8%.

“Overall, the gap between total household spending across Asean and India will also almost triple,” BMI researchers note.

But what will the trajectory of this growth entail? Mohit Malhotra, Chief Executive Officer of Dabur India, one of India’s leading consumer goods companies, highlights four key factors that will shape the future of India’s consumer market. “The growing affluence in India, rural demand, our rich demographic dividend, and technological advancements will be the four major drivers that will reshape consumption in the FMCG space in the years to come,” Malhotra tells Business Today. He explains that as disposable income grows in the country, the movement is towards premiumisation. “With rising incomes and a growing middle class, there is an increasing demand for premium and high-quality products, particularly in urban India. Consumers are willing to pay a premium for products that offer better quality, unique features, or enhanced experiences,” he adds.

Malhotra’s perspective is echoed by analysts at Boston Consulting Group (BCG), who note that Indian consumers earning more than Rs 20 lakh annually are already spending significantly on luxury items such as cosmetics, beauty and health services, passenger vehicles, leisure travel, and household appliances and electronics. Additionally, rapid urbanisation and digitisation are leading young consumers to spend more on services that were not part of their budgets a decade ago. BMI estimates that spending on communication-related services will grow at over 11% CAGR in the coming years, driven by a “technology-literate, urban middle class with increasing amounts of disposable income that would encourage expenditure on aspirational products such as consumer electronics”.

Another key driver of growth is the burgeoning FMCG market, which is set to gain further momentum. Suresh Narayanan, Chairman & Managing Director of Nestlé India, says that the local FMCG market is “undergoing rapid transformation driven by evolving consumer preferences, technological advancements, and economic shifts”. He adds, “Growth will come from premiumisation and new category adoption. This trend will be more pronounced in the Top 100 cities, driven by increased disposable income.” Narayanan goes on to say that there is a growing willingness among Indian consumers to invest in value-added offerings. “New super-premium segments will emerge to cater specifically to the affluent.”

The premiumisation trend, embraced by leading FMCG players such as Nestlé, Hindustan Unilever Ltd (HUL) and ITC, is expected to benefit manufacturers and drive a segment of consumers towards increasing their spending across various FMCG categories.

Over the past decade, the FMCG market in India has recorded a CAGR of 13%. However, per capita consumption remains lower compared to many Asian peers and global leaders. At $46, per capita FMCG consumption in India lags behind that of Indonesia ($103), China ($126), the Philippines ($255), and Thailand ($438). Yet, this is changing. Indians are increasingly consuming higher-priced offerings, say industry experts.

Moreover, with rapid digitisation and affordable internet data rates, rural consumers are also joining the consumerism trend. “Rural consumption habits are also changing fast. The great rural-urban divide is no longer as pronounced as it was a decade ago. As a result, aspiration levels in rural India have grown, and this growing aspiration is now backed by more money in their pockets,” says Dabur’s Malhotra. The think tank, The Brookings Institution, echoes Malhotra and highlights the significance of India’s rural consumers, noting that despite having a larger consumer pool, China’s 194 million rural consumers are outnumbered by India’s 232 million, which is expected to grow at a faster pace.

As India charts its path towards becoming a global economic leader, the transformation of its consumer landscape will play a crucial role in shaping the future of both the Indian and global markets. The next two decades will be a period of dynamic growth and adaptation, setting the stage for India to redefine its position on the world stage. 

@arndutt