Beyond Diwali Dhamaka – India’s Consumption story – Economy News

By Rajesh Shukla

It is the festive season yet again and the pitch is only getting louder for Diwali Dhamaka sales. While, this may be the most wonderful time of the year for retailers, the consumption patterns in India over the past three decades reveals a compelling evolution—a transition from necessity-driven spending to an aspirational, lifestyle-focused economy. This transformation, fueled by economic liberalization and the rise of the middle class, has sculpted a diverse consumption landscape across both urban and rural regions. Marked by widening economic disparities, this shift also sees a gradual convergence in spending habits between urban and rural consumers. Insights from PRICE ICE 360° surveys and National Statistical Office (NSO) findings offer a comprehensive view of India’s journey toward a middle-class-led consumption economy.

The liberalization of India’s economy in the 1990s served as a significant catalyst for these evolving consumption trends. The economic reforms of that era unlocked opportunities for income growth and urbanization, sparking a fundamental shift in consumer behavior, particularly in urban regions. Today, discretionary spending on lifestyle goods is booming among urban households, reflecting an appetite for products beyond mere survival. The PRICE ICE 360° survey underscores this shift by highlighting a surge in urban spending on categories like electronics, fashion, and personal care. This trend points to an emerging culture of aspirational consumption, where Indian consumers increasingly prioritize products and experiences aligned with their evolving lifestyles. While urban areas lead the charge toward lifestyle-driven spending, the NSO’s data reveals a different story in rural areas, where essential goods remain the primary focus, underscoring the economic disparities that continue to shape India’s consumption landscape.

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Several new trends are also redefining Indian consumption. The rise of e-commerce has brought an unprecedented level of accessibility to rural and urban consumers alike, with the Covid-19 pandemic accelerating this shift. Online shopping, which became essential during the pandemic, now extends to rural areas, reshaping traditional shopping habits. Health and wellness, especially in urban India, is another emerging focus area, with spending on fitness, organic foods, and supplements on the rise. This trend suggests a growing emphasis on personal well-being and a preference for health-oriented products. Additionally, India’s urban youth increasingly gravitate toward sustainable choices, from electric vehicles to recycled products, aligning with global consumption patterns driven by environmental awareness. A final trend is the “experience economy,” where affluent young consumers prioritize travel and entertainment over material ownership, underscoring a cultural shift toward valuing experiences over possessions.

The growth in discretionary spending is primarily fueled by India’s upper-middle-class and affluent urban households. According to PRICE ICE 360°, the top 20% of urban income earners account for nearly half of the nation’s consumer spending, with a focus on premium products such as electronics, branded fashion, and vehicles. These high-income consumers wield significant influence over India’s consumption landscape. In rural India, however, essential spending continues to dominate, although there is a gradual increase in aspirational purchases like mobile phones and entry-level two-wheelers. While urban areas are rapidly embracing a lifestyle-driven consumption model, rural regions are following more gradually, though moving in a similar direction.

The pace of consumption growth in rural India is showing signs of revitalization, especially in areas known as “Boom Towns” and developed rural regions. PRICE ICE 360° data projects that rural India is set to drive 55% of incremental consumption by 2031, marking a critical shift in rural spending capacity. This shift is fueled by improvements in infrastructure, access to credit, and governmental schemes aimed at empowering rural households. Government programs, like the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA), have provided some economic relief, but it’s the infrastructure development and better access to consumer markets that are sparking the most growth. As these Boom Towns expand and developed rural areas gain access to products once limited to urban consumers, categories like consumer electronics, health, and education are emerging as priority spending areas, gradually closing the consumption gap with urban India.

Comparing urban and rural consumption patterns reveals a distinct evolution. In rural areas, where essential goods like food grains and utilities were once the sole focus, the modernization of consumption is evident in the rising demand for mobile phones, vehicles, and education. In urban areas, however, the shift toward lifestyle products, such as electronics, dining out, and branded fashion, underscores an increasing preference for quality-of-life-enhancing goods. NSO data highlights rising urban spending in healthcare, technology, and education, signaling the dominance of lifestyle-oriented consumption in these regions and underscoring a growing economic divide.

India’s projected transition from an “aspirers’ economy” to a middle-class-led economy is another key trend identified by PRICE ICE 360°. By 2031, India’s economy is expected to expand to $7.1 trillion, with consumer spending surging from $1.9 trillion to $5.2 trillion. This shift is anticipated to fuel a middle-class-led consumption boom, further influencing the nation’s economic trajectory. As this demographic gains purchasing power, their influence over India’s consumption patterns will only grow, marking a turning point in the country’s economic landscape. One of the most significant trends in recent years is the gradual narrowing of the urban-rural divide, especially in areas where “Boom Towns” are flourishing. PRICE ICE 360° projections suggest that rural India, including these towns, will account for the majority of incremental consumption by 2031. With rural incomes rising and improved infrastructure allowing access to a broader range of products, rural areas are showing a willingness to invest in categories once dominated by urban consumers. This convergence between rural and urban consumption patterns is shaping a more cohesive national consumer economy, where aspirations and lifestyles blend across regions.

In conclusion, India’s evolving consumption patterns reflect a dynamic economy poised for a middle-class-led transformation. While economic disparities and regional differences remain, the convergence of rural and urban consumption trends signals an inclusive future for India. This shift not only highlights India’s growth but also underscores a move toward equitable
consumption across diverse socio-economic backgrounds, paving the way for a unified national market driven by a rapidly emerging, aspirational middle class.

The author is Managing Director & CEO People Research on India’s Consumer Economy.

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