Households with income ₹5-20 lakh per annum contributed 43% of the ₹110 trillion annual consumption in India in 2018, says a BCG report
Domestic consumption in India in the last decade increased 3.5 times from ₹31 trillion to ₹110 trillion, says the report
New Delhi: Aspiring and affluent households that earn between ₹5 lakh and ₹20 lakh per annum have helped spur domestic consumption in India over the past decade, according to findings of a report by the Boston Consulting Group (BCG) released on Tuesday.
Consumers in Asia’s third largest economy increased their spends on financial services products, apparel, footwear, health, jewellery, and personal care in the last decade. “This shows that consumers in India care about their savings and their appearances," Abheek Singhi, senior partner and managing director, and consumer practice lead, Asia-Pacific, at BCG, said in an interview.
These income groups, which constitute 28% of all households, contributed to 43% of the ₹110 trillion in annual consumption in the country in 2018, BCG noted. Domestic consumption in India in the last decade increased 3.5 times from ₹31 trillion to ₹110 trillion. BCG estimates that this will touch ₹335 trillion by 2028.
India’s massive population offers a huge consumer base for most large consumer goods makers. As a result, the country’s demographic and their purchasing power is monitored closely. “With rising affluence in India, households are climbing up the income ladder to drive nearly 3.5 times growth in consumption. This growth, fundamentally, is driven by two main factors—average spend per household and the total number of households," BCG said.
BCG defines affluent households as those earning ₹10-20 lakh, while aspiring households are those with an annual income of ₹5-10 lakh. The next billion earns between ₹1.5-5 lakh per annum, while the strugglers earn less than ₹1.5 lakh per annum.
India’s affluent and aspiring households have seen a sharp jump in absolute numbers in the last decade. Affluent households have more than doubled since 2008, from 10 million to 24 million. Aspirers have jumped from 31 million households to 57 million. Elite households, those who earn upwards of ₹20 lakh, have grown from 3 million to 9 million.
The next billion households, which grew from 104 to 129 million, still contribute the largest share of consumption in India, though their share in overall consumption dropped from 44% in 2008 to 34% in 2018, as consumption by other income groups increased faster. The strugglers are at 67 million households.
Consumers are increasing discretionary spends on categories other than essentials such as food and consumer durables, along with the rise in income levels.
Rampreet Kaur Gill, a 44-year-old, said her family’s discretionary expenses on electronics, cars, and clothes have been rising over the last decade. The family of four that lives in east Delhi has an annual income of ₹20 lakh.
“Today improving our standard of living takes precedence over savings," she said. The family continues to invest in mutual funds, insurance policies, and the provident fund, but “with better options and varieties in the market we don’t shy away from spending on what we need", Gill said.
Households such as that of the Gills have driven the demand for clothing, footwear, and health which were among the fastest growing consumption categories in the last decade, BCG noted. Spends on clothing and footwear increased 4.6 times to touch ₹7.8 trillion in 2018 up from ₹1.7 trillion in 2008. Spends on healthcare goods and services grew by 14% to touch ₹5 trillion in 2018.
The outliers, Singhi said, were financial services, social protection, jewellery, which saw a rapid growth. “Expenditure in jewellery and social protection particularly grew, registering a compound annual growth rate of 19% in the last decade," BCG noted.
Singhi expects consumption to “continue to grow in early double digits say 12%". However, it is to be seen which consumer class grows faster, he said.