Billion Indians Lack Spending Power As Wealth Gap Widens: Report

Around a billion Indian people lack money to spend on discretionary goods or services, according to a new report from Blume Ventures, a venture capital firm.

The report claims that the country’s consuming class, which is the potential market for start-ups or business owners, only makes up around 130-140 million people. India’s population is estimated to be around 1.4 billion.

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The report states that nearly 300 million are “emerging” or “aspirant” consumers but are reluctant spenders who have just started to spend cash, as digital payments make transactions easy.

The report also stated that the consuming class in India, the third largest economy in Asia, is “deepening” instead of widening.

What does this mean? India’s rich are getting richer, and the wealthy population is not growing. The poor, on the other hand, have lost purchasing power.

According to the report, this trend has accelerated “premiumisation” where brands drive growth by focusing more on expensive products that cater to the wealthy instead of focusing on mass-market offerings.

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Rising sales of ultra-luxury gated housing and premium phones are some examples of “premiumisation.” Affordable homes only contribute 18 percent of India’s overall market. Five years ago, it was 40 percent, the report observed.

With concerts by international artists including Coldplay and Ed Sheeran held in India, the “experience economy” is booming thanks to the expensive tickets.

“Those who are too focused at the mass end or have a product mix that doesn’t have exposure to the premium end have lost market share,” said Sajith Pai, one of the authors of the report, told BBC.

Currently, the top 10 percent of Indians hold 57.7 percent of national income. In 1990, the top 10 percent held 34 percent of the national income. Meanwhile, the bottom half witnessed their share of national income drop from 22.2 percent to 15 percent.

Decreasing financial savings and increasing indebtedness among the masses is also a major problem.

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On the other side, the engine for consumer demand in India, the middle class, is being squeezed out, with wages remaining flat, according to data compiled by Marcellus Investment Managers. The report stated that the RBI has highlighted several times that net financial savings of Indian households are nearing a 50-year low.”

“This pounding suggests that products and services associated with middle-class household spending are likely to face a rough time in the years ahead,” it added.