Over the last two decades, the slow yet steady rise in income levels in India and growing aspirations of its vast youth population have fuelled a thriving consumer goods market. Today, the country’s consumer economy stands only behind China, the US, Germany, and Japan, and is set to take the third spot next year as it continues to grow faster than all other major economies, says UBS Securities.
Industry watchers suggest that consumer demand in India is at a tipping point and could set the tone for the next decade when it is likely to overtake both Germany and Japan. A report by Edelweiss Mutual Fund says India’s consumption expenditure could be the second highest in the world as early as 2030. It adds the growing middle and upper-middle income groups will help increase consumption expenditure by 46% during the same period. And those predictions were made before the government gifted the two cohorts a bonanza in Union Budget 2025-26 by cutting income tax rates in a bid to get them to open the spending taps in full force.
Data from the World Economic Forum (WEF) suggests that those projections may not be fanciful after all. India had a meagre 17 million households in high to upper-middle class segments in 2005. The number grew four-fold to 69 million by 2018. By 2030, that is expected to jump a further 185% to 197 million, with nearly 7% of India’s households in the high-income bracket.
These projections have got the consumer goods industry dreaming, despite the temporary blip in recent years. “India’s consumer market is poised for a significant transformation,” says Rohit Jawa, CEO and Managing Director of India’s largest FMCG firm Hindustan Unilever.
A long-term inflection point is clearly visible, Jawa says, “driven by growing affluence, improved access to digital and physical infrastructure, and median age of less than 30 years. India’s consumer market will likely be characterised by democratisation of aspirations for a better life and shift towards sophisticated consumption patterns,” he tells Business Today.
According to Saugata Gupta, MD & CEO of Marico, with a large and young population, India has the potential to become one of the world’s largest consumer markets. “We envision the Indian consumer market undergoing a profound transformation. It is on the cusp of significant growth in the coming years,” he says.
Data suggests that the rapid growth in urbanisation will further aid this trend. Around 40% of Indians are expected to live in urban centres by 2030, up from 34% in 2018 and 28% in 2005.
The country not only has the largest population in the world at 1.4 billion, it also has the largest number of young consumers. WEF’s projections show that while in 2018, about 82% of the population comprised those aged less than 50, by 2030, the share will dip only marginally to 77%, with the 15-49 age group comprising 53% of the population. In comparison, 45% of the US’ population will be in the 15-49 age group; for China, it will be 44%.
Another key trend is increased access to information through smartphones and better internet access. This has sparked a shift in preference for better quality products from established brands. “Growth will come from premiumisation and new category adoption. This will be more pronounced in the top 100 cities,” says a Nestlé India spokesperson.
Challenges remain, of course. Steep inflation in recent years, stagnating growth in real incomes and rising youth unemployment have combined to dent consumption in both rural and urban markets. As consumers cut down on spending, sales of all consumer goods categories have faced speed bumps in recent quarters. From 7.5% year-on-year (YoY) growth in urban FMCG offtake in the December 2023 quarter, sales growth plummeted to 1.9% in the June 2024 quarter, only to recover to 5% in the December quarter, data from market research firm NielsenIQ shows.
The rural market, which accounts for 36% FMCG demand and has seen muted growth in recent years, offered some hope as it saw a slight recovery in demand, albeit on a low base. In the December 2024 quarter, it posted 9.9% YoY growth. In fact, the relatively poor show in urban areas has resulted in the rural market growing faster than urban since March 2024.
Signs of stress are also visible in the Indian smartphone market, once the fastest-growing in the world. Sales have been tepid in recent quarters. Smartphone shipments in India grew 4.1% in 2024, as per market intelligence firm IDC. In fact, the market shrank 3% in the festive quarter (October-December), usually a strong period for sales. ,Vendors and channel partners continued to cut prices, offer discounts and extended device warranties in the post-festive period to address the slide, as per IDC analysts.
Of course, the concerns may be short-lived if the income tax cut for individuals earning up to Rs 12 lakh delivers the desired consumption push. “With policies in the Union Budget FY26, we anticipate middle-class consumption to surge, driven by increasing disposable incomes, job creation, urbanisation, and digital adoption,” says Gupta. In the next few years, this is expected to drive consumer spending with a sizeable portion going towards essential categories like food, beverages, apparel, and personal care, he says.
The tax boost aside, the country needs to improve job creation and address the scarcity of skilled workers. According to Madhavi Arora, Chief Economist at Emkay Global Financial Services, while youth unemployment is hurting household income growth, the bigger issue is the dearth of skilled workers. “Employers are unable to find suitable candidates for the job profile on offer. There is a clear mismatch between skill sets required and available human capital,” she says.
These are temporary blips in the country’s long-term growth story, say industry leaders. Jawa is optimistic about the potential of India’s young population. “Job creation and income growth are critical, and strategic investments in education, skill development, and infrastructure will unlock the demographic dividend,” he says.
There will be opportunities aplenty in the world’s most populous country and businesses that cater to both urban and rural consumers will thrive.
@arndutt
