BackIndia’s consumer map is rapidly being redrawn by major trends
Companies must adapt to a market of rising incomes, digital innovations, new consumers and altered consumption curvesWhile the pandemic has caused some short-term uncertainty, India’s long-term consumption prospects remain robust as incomes rise and millions join the country’s consuming classes.
PremiumPandemic shocks and aftershocks make the immediate economic outlook more than usually uncertain. Over the longer term, however, prospects for India’s consumption remain robust as incomes are projected to rise and millions more will experience growth in their spending power.
New McKinsey Global Institute research finds that one of every two upper-middle-income and above households is expected to be in Asia, and one of every two dollars of global consumption growth is likely to occur in the region. In short, miss Asia and you could miss half the world’s consumption growth story over the next decade, worth $10 trillion, with India accounting for $1.8 trillion.
In a decade, India may boast half a billion more middle-income consumers than it does today; by 2030, 55% of India’s population could belong to what we call the ‘consuming class’—spending more than $11 a day in purchasing power parity (PPP) terms and therefore able to spend on not only basics like food and housing, but also discretionary items. This would be more than double today’s population share at 24%, and six times the share of 9% in 2000, a remarkable upward shift. The story does not stop there. The top of India’s income pyramid is expanding. The proportion of consumers in the two highest income tiers of the consuming class (spending $30-70, and more than $70 a day) could double to 20% by 2030.
Alongside this compelling prospect of rising prosperity, we cannot forget the sobering reality of inequality. The bottom half of Indians by income could still own only 3% of India’s wealth in 2030, according to Credit Suisse (bit.ly/3CBm2Qm) estimates for 2019. Moreover, the pandemic hit the most vulnerable—those on low incomes and women—the hardest, potentially exacerbating inequality across Asia, including in India. By Asian Development Bank estimates (bit.ly/2XHGqzX ), the number of people living in poverty (on less than $3.20 a day in PPP terms) in Asia may have increased by more than 170 million in 2020 due to the pandemic’s effects. Furthermore, climate risk is likely to fall disproportionately on those with lower incomes, potentially reinforcing inequality.
Despite the challenges, India retains its large long-term growth potential—an opportunity that will require companies to note and track significant demographic forces and behavioural change.
Let’s take demographics first. In India, two generations will come into focus over this decade: a generation of ‘online-first’ consumers born between 1980 and 2012 (‘digital natives’), expected to account for at least half of all consumption by 2030, and those aged 60 and over, whose consumption could grow 1.6 times faster than that of India’s on the whole, making seniors a segment to watch. This is partly a reflection of their rising numbers. By 2030, the United Nations projects that there could be 35-40% more seniors in India than today. But it also reflects seniors’ spending patterns. Before 2020, seniors were slowly turning ‘digital’, driven in part by a desire to stay in touch with their children. The pandemic accelerated this shift (bit.ly/2W5nWcv), and senior spending patterns are likely to shift increasingly online. Internet banking, ride-hailing and payment of utility bills are some of the most cited reasons why seniors use digital tools.
The economic empowerment of women may create a new wave of opportunities, but that hinges on more progress—by raising their participation in formal work, increasing access to digital technologies and financial services, for instance. Potentially, an estimated $1.4 trillion could be added to India’s economy by 2030 from increased female participation. This opportunity may not be easy to capture with mixed progress, at best, on narrowing gender gaps. However, some bright spots exist.
In India and South Asia, the gender gap in mobile internet access has narrowed by 16 percentage points since 2017 as 78 million more women have come online, according to GSMA 2020 figures. New digital models can help more women join the labour force as entrepreneurs. But digital literacy among women needs to rise. GSMA found that 35% of Indian women (compared with 26% of men) said that lack of knowledge about how to use the internet was a barrier.
Companies serving the Indian market need to consider not only high-level demographic segments, but a growing kaleidoscope of consumer segments—some quite new—that are becoming even more diverse in an era of rapid technological change.
Consumption preferences and behaviour are also reshaping India’s consumer landscape. Technological change is a key driver of this as consumption digitizes. Digital ecosystems are emerging, and various players are striving to serve new customer needs. Some are adopting a ‘super app’ model in which a single app offers one-stop-shops for a range of digital services. Pioneered in China, super apps offer convenience, speed and choice. Many Indian super apps started by offering high-frequency services such as payments, e-commerce, or communications, but are expanding efforts to cover more needs from travel and entertainment to health.
Innovation in business models is breaking down a well-established relationship between income and consumption in some categories. One major consequence is that previously excluded consumers may now have access to new goods and services. Let’s take financial services. More and more people with lower incomes can access e-wallets and mobile payments, and leapfrog traditional bank services. In all these domains, technology is democratizing consumption, thereby opening up the market to a vast number of new consumers. Rising incomes (for many), new consumers and new consumption curves amount to a great deal of change that companies must adapt to. If they do, India offers a multitude of growth opportunities.
Jonathan Woetzel & Mahima Chugh are, respectively, director, McKinsey Global Institute; and partner, McKinsey, Mumbai office.
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