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Why are Indians shelling out so much money for a show by a band which is not even one of the most popular in the world today? While many attribute this phenomenon to the extreme FOMO (fear of missing out) sentiment in the age of social media when people like to flaunt things, it is also an indicator of India’s economic situation. The frenzy for Coldplay tickets shows India’s strengthening consumption story even as disposable incomes rise, the number of rich grows at a fast pace, the size of the middle class increases and a trend of premium consumption sweeps across sectors. Not just the class that clamours for Coldplay tickets, even those at the bottom of the pyramid are showing different consumption trends.
Premiumisation of consumption in India
For past few years, companies in several sectors, from FMCG to auto to durables to housing, have been trying to lure the rich customers who have grown in number and are willing to splurge, especially after the pandemic which led to the rise of the YOLO (you only live once) sentiment. From snacks to watches to TVs to cars to houses to Coldplay tickets, the new consumer class is willing to pay the top rupee for premium items.
Premiumisation is a trend that continues from the pandemic times when locked-in affluent people splurged on large TVs and washing machines and expensive food and liquor. But in 2023, the crack in India’s consumer demand seemed to widen into a split, as companies struggled to sell low-priced goods while luxury, high-priced items flew off the shelves. At least the phenomenon came to be perceived as a definite turn in the market in 2023. It developed into a major trend in 2023 when companies wooed the rich consumers to compensate for lower sales and falling margins. While those at the lower income levels largely remained reluctant to open their purse strings after the pandemic ravaged the economy, the rich splurged on luxury items. While makers of two-wheelers and FMCG companies hoped for a demand revival in rural India, the luxury goods market witnessed high sales, with India’s rich splurging on expensive cars, homes, watches, etc.Premiumisation has not remained confined to big cities but is sweeping across small-town India even though rural market has been under stress due to inflation which is now going down. The premiumisation story in consumption has continued unabated in the first half of calendar 2024, as per latest data from companies and researchers, ET reported in July. This is even when there is a growth slowdown in car and smartphone sales, while sales of FMCG are yet to recover fully. For the first time ever, vehicles priced over Rs 10 lakh accounted for nearly half of all vehicles (about 48%) sold in the country between January to June as compared to 44% in the same period a year earlier, as per top manufacturers.
The share of Rs 30,000-plus smartphones has gone up to its highest ever of 20% of the overall market by number of units sold between January to May as compared to 17% a year back, Counterpoint Research data shows. By value, it’s 49%. Counterpoint said the share of 50-inch plus televisions went up from 21% to 24% in total TV sales in India in the same period. The researcher said preliminary numbers for June show the contribution remains in a similar range.
Expansion of India’s affluent and the middle classes
The number of Indian households with an annual income of more than Rs 30 lakh per annum will increase by 11.3 crores by the financial year 2031, according to a recent report by U Grow Capital. The report also highlights that the number of middle-class households having income between Rs 5 lakh to Rs 10 lakh annually will also increase by 28.3 crore by 2031.
“Estimates suggest that from FY21 to FY31, the number of affluent households (with annual incomes over Rs 3 mn) will increase by 113 mn, and middle-class households (with annual incomes between Rs 0.5-1 mn) will grow by 283 mn,” the report said.
As per figures from PRICE ICE 3600 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 surveys by People Research on India’s Consumer Economy (PRICE), an independent, not-for-profit think tank and facts tank, show that by the end of this decade, 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.
A booming economy and bullish stock markets have led to India’s rich growing richer as well as in number. India minted a new billionaire every five days in the last one year and took the total count of US dollar billionaires to cross the triple-century mark for the first time. The 2024 Hurun India Rich List shows that India now has 334 billionaires by adding 75 compared to the last year. The pattern of wealth creation in India has become more decentralized and widespread. Over the last decade, the number of Indian cities represented in the rich list has surged to 97 from 95 last year, up from 10 cities since the inception of the list, the report said.
As per ‘World Wealth Report 2024’ by The Capgemini Research Institute, high net-worth individuals (HNIs) in India increased by 12.2% year-on-year in 2023 riding on a robust economy and the performance of the domestic equity markets, taking the HNI tally to 35.89 lakh. India’s market capitalisation increased by 29% in 2023, registering a multifold jump over 2022 when the M-cap surged by only 6%.
India’s changing consumption story
It’s not just Indians who are part of affluent and aspiring middle classes (those who are willing to buy Coldplay tickets at sky-high prices) who are witnessing a rise in lifestyle and consumption. Indians at the bottom too are witnessing a new consumption trend. They are no longer trying to merely make ends meet.
Consumption inequality declined over the last decade, with the share of the top 10% households in consumption falling 1.9% in rural areas and 4% in urban areas, as per results of the latest Household Consumption Expenditure Survey (HCES). The share of all other categories rose during the period, the results released by the government indicated, with the maximum jump coming from the middle income households. The data found that the Gini coefficient – a measure of inequality – declined between 2011-12 and 2022-23.
As cereal consumption share more than halved in rural areas to 4.89% from 10.69% over a decade ago, the share of processed food and beverages went up to 9.62% from 7.9% earlier, indicating a shift in consumption. Discretionary items now account for a larger share of household spending than in 2011-12 when the survey was last released, a sign of reducing poverty. Delivery of social welfare schemes has improved with the bottom-of-the-pyramid households deriving more from such schemes.
A recent working paper by the Economic Advisory Council to the Prime Minister (EAC-PM) has found that India’s average household expenditure on food has fallen to less than half for the first time since 1947, indicating that people now have money to spend on other things than bare necessities.
The Household Consumption Expenditure Survey also shows that India’s poorest households and those at the bottom of socio-economic standing have seen their per-capita spending grow faster than better-off households in the last decade, although on a lower base.
Consumption spending in marginalised groups such as Scheduled Castes, Scheduled Tribes and Other Backward Classes rose a percentage point faster every year compared with the other groups, indicating a decline in consumption inequity between upper and lower castes in the country since 2011-12, Et had reported in June based on official data.
(With inputs from agencies)