What’s next for India’s economic future?, consumer base, middle class, puchasing power, consumer spending, economy, report, gdp

New Delhi: India, with a population of over 1.4 billion, is witnessing a growing divide in its consumer market, where only a small segment of the population is driving discretionary spending.

According to a recent report by Blume Ventures, just 10% of Indians—approximately 130-140 million people—belong to the “consuming class,” with enough disposable income to spend on non-essential goods and services.

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Despite consumer spending being a crucial contributor to India’s GDP, the report indicates that the country’s startup ecosystem heavily relies on this relatively small demographic.

An additional 300 million people are classified as “aspirant consumers,” who are gradually increasing their spending, largely driven by the adoption of digital payment systems like UPI.

However, these individuals remain cautious with their purchases, and sectors such as OTT media, gaming, edtech, and lending are expected to see more activity within this group.

The most significant revelation, however, is that a staggering one billion people in India do not have sufficient income to afford discretionary items, presenting a considerable challenge for businesses trying to tap into this market.

The report refers to this massive section of the population as being “beyond the pale” for startups at present.

A ‘K-shaped’ recovery deepens India’s consumer divide

This growing income disparity is emblematic of India’s “K-shaped” recovery post-pandemic, where the wealthy continue to thrive while the lower-income groups experience diminishing purchasing power.

In fact, the top 10% of India’s population now controls 57.7% of the country’s national income, up from 34% in 1990, while the bottom half of earners have seen their share of national income drop from 22.2% to 15%.

The trend of “premiumisation” further exacerbates this divide, with businesses increasingly focusing on high-end products for the affluent rather than mass-market goods.

This shift is evident in the growing demand for luxury items such as high-end smartphones and expensive homes, while affordable housing has shrunk dramatically, now accounting for just 18% of the market, compared to 40% five years ago.

The middle class shrinks amid rising debt and stagnant income

Another worrying sign is the shrinking middle class, a traditionally vital driver of India’s economic growth.

A report by Marcellus Investment Managers highlights that the middle 50% of India’s tax-paying population has faced stagnating wages for the past decade. When adjusted for inflation, their real income has essentially halved.

This decline in income has had a severe impact on savings, with the Reserve Bank of India (RBI) noting that household financial savings are at a 50-year low.

Compounding these financial pressures is an increase in consumer debt.

Many emerging consumers are relying on borrowing to fund their lifestyle, but the RBI’s tightening of regulations on unsecured lending is likely to stifle future spending, exacerbating the consumption slowdown.

Impact of automation and AI on employment

On top of economic challenges, India is grappling with the rapid rise of automation and artificial intelligence (AI), which threatens to displace white-collar jobs. AI systems are replacing roles in clerical, administrative, and even supervisory positions within the manufacturing sector, causing anxiety about job security among workers.

The Economic Survey of 2025 highlights these concerns, warning that while AI can boost productivity, it may disrupt India’s labour-intensive workforce.

The report stresses the need for proactive policies to balance AI adoption with employment protections, noting that taxation of AI-driven profits could hinder economic growth, as cautioned by the International Monetary Fund (IMF).

Navigating an unequal economic future

As India’s consumer market faces a deepening divide, the future appears uncertain for large segments of the population.

While the affluent class continues to prosper, the middle class is stagnating, and lower-income groups remain largely excluded from discretionary spending.

With shrinking savings, rising debt, and job losses due to automation, the government and businesses must act quickly to ensure inclusive growth and mitigate the risks posed by these economic shifts.

A collaborative approach between the private sector, academic institutions, and the government is essential to address these challenges, ensuring that India’s economic transformation benefits all sections of society, and not just the wealthy few.

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