The share of essentials has declined in private final consumption expenditure (PFCE) between FY13 and FY23 while that on health and education among others rose. Health saw 8.2% growth and education 7.5% growth. Housing expenses dropped from 16.4% to 13% and clothing from 6.1% to 4.8%. Transport and communication also saw substantial growth at 8.2% and 7.8% respectively. Food and beverages remain the largest spending category, but their share decreased from 30.5% to 28.2%. Within this category, packaged food experienced the highest growth at 10.4%, followed by meat (8.7%), fish and seafood (8.3%), and eggs (7.1%).
These numbers would suggest that the Indian middle class is growing, as people rise above struggling for bare necessities and start spending more on heath and education, which indicates an aspirational drive, or on discretionary items which indicates purchasing power.
How India’s population pyramid is shape-shifting
As per the figures released last year from PRICE ICE 360° surveys based on primary data, The middle class is the fastest-growing major segment of the Indian population in both percentage and absolute terms, rising at 6.3 percent per year between 1995 and 2021. It now represents 31 percent of the population and is expected to be 38 percent by 2031 and 60 percent in 2047. More than one billion Indians will make up the middle-class when India will turn 100.
The People Research on India’s Consumer Economy (PRICE), an independent, not-for-profit think tank and facts tank, collected primary data in 2014, 2016 and 2021, covering over 40,000 households, both rural and urban from 25 states, for its PRICE ICE 360° surveys. The results paint a strikingly new picture of India. By the end of this decade, the survey says, the structure of the country’s demographics will change from an inverted pyramid, signifying a small rich class and a very large low-income class, to a rudimentary diamond, where a significant part of the low-income class moves up to become part of Middle Class. Consequently, the income pyramid will have a smallish layer at the bottom comprising the Destitute and Aspirer groups, a huge bulge of the Middle Class and a big creamy Rich layer on top. The percentage growth is much higher for the upper income groups than the lower income groups. In fact, for the lowest income groups the growth could even be in the negative.
What a middle class bulge would mean for business
Today, Western multinational giants, especially those in the FMCG sector, come to India looking for volume growth. India’s market size has a big pull. Imagine when in addition to even larger volumes, they also come to India looking for profit margins; such a large middle class will obviously give colossal purchasing power to India and the capacity for huge discretionary spending.Imagine desi companies easily growing into global biggies supported by vast domestic scale. Growing disposable incomes, along with the rise of the middle class, will make India a consumption powerhouse.Imagine more than half of India’s population being the middle class, with typical middle-class inclination for quality education, and exhibiting typical middle-class mindset of striving slowly, steadily but resolutely to make a class jump. Such a large number of college-educated professionals will surely unleash innovation and enterprise at a gargantuan scale.
That would be like a dozen Bengalurus sprouting across India, with probably mohallas having their own unicorns. Add a dozen Hyderabads too where Indian techies won’t be doing merely the grunt work for the world’s biggest companies. They won’t be running the back offices but the brain offices.
Class and religious conflicts that weigh down on India’s economic potential will likely lose their potency as the dominance of the middle class will also dictate political discourse. Politics, especially electoral politics, will likely revolve around typical middle-class issues such as health, education, infrastructure and jobs. As urbanisation grows, old forms of social affiliations such as caste will weaken, creating an egalitarian India, empowering a large chunk of India’s population which now remains chained to disabling discourses.