India’s Private Consumption Surpasses Major Economies, People Earning Rs 8.5 Lakh Per Year To Triple By 2030: Report

Skand Vivek Dhar/SK Singh: Private consumption in India is growing at an annual rate of 7.2%, outpacing major economies such as the United States, China, and Germany. Around 88% of India’s population belongs to the upper class, upper-middle class, or lower-middle class, driving the economy through both discretionary and essential spending. According to India’s Discretionary Spend Evolution Report by the Retailers Association of India (RAI) and Deloitte, private consumption in India rose from $1 trillion in 2013 to $2.1 trillion in 2023. By 2030, India's economy is projected to reach $7.3 trillion, with consumption accounting for 60% of the GDP.

Rising Discretionary Spending in India

RAI’s CEO, Kumar Rajagopalan, notes that India's discretionary spending is entering a new phase of growth driven by rising incomes, digital adoption, and evolving consumer preferences. Anand Ramanathan, Partner at Deloitte India, predicts that India's per capita income will exceed $4,000 by 2030, further fueling discretionary spending.

The report estimates that by 2030, the number of Indians earning more than $10,000 (Rs 8.5 Lakh approx) annually will triple — rising from 60 million in 2024 to 165 million by the decade’s end. This expansion of the middle class is reshaping consumption patterns, with people prioritising quality and better experiences. Notably, Gen Z and Millennials, who make up 52% of India's population, are leading this shift.

Changing Consumer Spending Patterns

According to the RAI-Deloitte report, per capita monthly expenditure in India has increased significantly:

- Rural areas: From Rs 1,429 in 2012 to Rs 3,774 in 2023, reaching Rs 4,122 in 2024.

- Urban areas: From Rs 2,630 in 2012 to Rs 6,460 in 2023, rising to Rs 6,996 in 2024.

In urban areas, spending is distributed as follows:

- 13% on cereals and pulses

- 9% on eggs and fish

- 28% on processed food and dining out

- 50% on other items

This report gains significance amid recent media claims, based on Bloom Ventures, that 100 crore Indians lack disposable income. Dr Pritam Banerjee, Head of the Center for WTO Studies at the Indian Institute of Foreign Trade, said, "Not having the capacity for discretionary spending does not mean having no money at all. Essential spending on food, housing, education, healthcare, and transportation continues. It is incorrect to claim that one billion Indians lack money to spend."

Aniruddh Gupta, CEO of Ashiana Financial Services, agrees, citing events like Maha Kumbh, where a large turnout of non-affluent attendees still spent on religious travel. "At the ground level, spending is primarily directed towards basic needs. However, this population also engages in discretionary spending as required. Take the example of Maha Kumbh—most attendees were not from the wealthy class, yet they spent on the religious journey," he said.

Dr Banerjee also highlights that a significant portion of India's population has transitioned from poverty to the lower middle class, enabling them to meet essential expenses. As their financial situation improves, their discretionary spending will rise as well.

Prof. Surendra of the Delhi School of Economics echoes this sentiment: "India’s middle class has been growing steadily since liberalisation, especially after 2000. While the supply of affordable housing is limited, demand for mid-range homes has increased. The aspirational middle class is driving this trend."

RBI’s Measures To Curb Rising Consumer Debt

Bloom Ventures links the slowdown in consumption growth to declining purchasing power, reduced financial savings, and rising debt among consumers. According to Prof. Sachin Chaturvedi, Director General of the think tank Research and Information System for Developing Countries (RIS), in November 2023, the Reserve Bank of India (RBI) increased risk weightage on unsecured retail loans by 25%. This affected consumer loans from banks, NBFCs, and microfinance institutions, while loans for housing, education, vehicles, and gold remained unchanged. Credit card loans also saw a risk weightage hike to 150% for banks and 125% for NBFCs.

Prof. Chaturvedi, citing Fitch Ratings, stated that the Reserve Bank's decision led to a decline in unsecured retail loans and credit card loans. Unsecured retail loans, which had been growing at an average annual rate of 22% between FY 2020-21 and 2023-24, saw a slower growth of 11% in the first half of 2024-25. Credit card loan growth also declined from 25% to 18% during the same period. Additionally, RBI's decision contributed to a slight improvement in the unsecured loan portfolio of banks, with its share reducing from 25.5% in March 2023 to 25.3% in March 2024.

India’s Global Consumption Growth Rate

According to a Bloom Ventures report, India is the fifth-largest consumption market in the world. The US leads with a consumption market worth $18.6 trillion, followed by China ($6.9 trillion), Japan and Germany ($2.3 trillion each) and India ($2.1 trillion). Over the past 10 years, India has recorded the highest consumption growth rate, averaging 7.2% annually. In comparison:

China: 7.1%
United States: 5%
Germany: 1%
Japan: -2% (declining consumption)

The Bloom Ventures report categorises India's spending population:

- 140 million people earn $15,000 per year, forming the core market for startups.

- 300 million people earn $3,000 per year, spending on OTT, gaming, and ed-tech.

- 1 billion people earn $1,000 per year, focusing primarily on essential expenses.

Various surveys present slightly different estimates regarding income distribution in India. According to RedSeer (2022), 3.5 crore people earn more than $25,000 annually, while 14 crore people fall within the income range of $14,200 to $25,000. The majority, 72 crore people, earn between $3,500 and $14,200, whereas 52.5 crore individuals have an annual income of less than $3,500.

Similarly, Bernstein (2024) provides a different classification, stating that 6.5 crore people earn more than $12,000 annually, while another 6.5 crore have an income between $6,000 and $12,000. Additionally, 43 crore people earn between $3,300 and $6,000, and 79 crore individuals earn less than $3,300 per year. According to the World Bank, India's per capita income has grown significantly over the past decade, increasing by 60% from $1,550 to approximately $2,500.

According to Bloom Ventures, India's economy is undergoing a transition from an unorganised to an organised structure. In 2011-12, total personal income accounted for 15.2% of GDP, which increased significantly to 25.2% in 2022-23, reflecting the country's growing formal economy. Additionally, the number of GST-registered taxpayers has seen a substantial rise, growing from 68 lakh in August 2017 to 1.49 crore by November 2024, indicating increased tax compliance and economic formalisation.

Financial Sector Strengthening & Rising Consumer Credit

Consumer credit has played a major role in total loan growth:

- From March 2021 to December 2023, total loans grew 14.8% annually, while consumer loans grew at 20.6%.

- Private consumption (PFCE) grew 6.7% in the first half of 2024-25, accounting for 60%+ of GDP.

As evidence of rising consumer spending, Prof. Chaturvedi cites data from the Household Consumption Expenditure Survey (HCES), which shows an increase in spending among both rural and urban households during 2023-24 compared to 2022-23. From August 2022 to July 2023, household expenditure was Rs 3,773 in rural areas and Rs 6,459 in urban areas. This increased to Rs 4,122 in rural areas and Rs 6,996 in urban areas between August 2023 and July 2024.

Even at constant prices, consumer expenditure showed growth. In rural areas, it rose from Rs 2,008 to Rs 2,079, while in urban areas, it increased from Rs 3,510 to Rs 3,632, indicating a steady rise in purchasing power across both segments.

Strong Banking Sector Ensures Financial Stability

According to Prof. Chaturvedi, the banking sector has strengthened significantly in recent times, contributing to overall financial stability. Citing the Economic Survey 2024-25, he highlights that loan growth has outpaced nominal GDP growth for two consecutive years. The credit-to-GDP gap, which stood at -10.3% in the first quarter of 2022-23, has improved to -0.3% in the first quarter of the current financial year, indicating a steady rise in bank lending.

Regarding financial savings, Prof. Chaturvedi notes that the decline in household savings has been attributed to a drop in financial savings. However, data from the Reserve Bank’s Financial Stability Report (December 2024) suggests a significant increase in mutual fund participation. By November 2024, the asset under management (AUM) of the mutual fund industry had grown 38.8% year-on-year, reaching a record Rs 68.1 lakh crore.

A major driver of this growth has been Systematic Investment Plans (SIPs), with over Rs 25,000 crore flowing in through SIPs in October 2024 alone. This shift indicates growing investor confidence in financial markets, further reinforcing the stability of India's financial system.

Every Class in India is Advancing

Media reports have often linked rising consumption with growing inequality, but Prof. Surendra Kumar argues that progress is benefiting all economic classes in India. "The issue of inequality is raised repeatedly, but as long as conditions are improving for everyone, it should not be a major concern. Both the lower and upper classes are progressing. While the upper class may be advancing at a faster rate, it does not mean that one section is moving forward at the expense of another. In reality, all classes are progressing," he explains.

Addressing comparisons to the British colonial era, Prof. Surendra highlights that during that time, most Indians were poor, creating an illusion of economic equality. "Inequality arises only when some people move forward. This is a natural aspect of economic growth," he states.

Refuting claims that the bottom 10% of India's population is experiencing minimal growth, he clarifies that many individuals from the lowest class have moved up to the lower-middle and middle class. "When the number of people in a lower-income group declines, their overall share naturally decreases," he explains.

A Kantar research report supports this shift, showing that the upper middle class in India grew from 7% in 2014 to 33% in 2022. During the same period, the lower-income population declined from 69% to just 12%, indicating a significant upward economic shift. According to Prof. Chaturvedi, the report highlights that the top 10% of India's population now holds 57.7% of the national income, compared to 34% in 1990. Meanwhile, the share of the bottom 50% has declined from 22.2% to 15%, reflecting a growing concentration of wealth and rising income inequality.

However, consumption inequality has declined, as indicated by the Household Consumption Survey (2023-24). The Gini coefficient of consumer expenditure in rural areas fell from 0.266 in 2022-23 to 0.237 in 2023-24. In urban areas, it decreased from 0.314 to 0.284, suggesting that despite income disparities, consumption levels have become more equitable.

India is not alone in facing wealth concentration. Oxfam data shows that the richest 1% of India's population owns 40.1% of the country's total wealth, while the bottom 50% controls less than 7%. Comparatively, in the United States, the bottom 50% of the population owns only 6% of the country's wealth, and in England, this figure is even lower, at less than 5%.

Despite income inequality, poverty levels in India have declined significantly. According to NITI Aayog, the poverty rate dropped from 29.17% in 2013-14 to 11.28% in 2022-23, marking a reduction of 17.89% in just nine years. The Multidimensional Poverty in India Report states that 24.8 crore people have risen above the poverty line in the last decade, reflecting substantial economic progress and improved living conditions for a large section of the population.

India’s Post-Pandemic Recovery U-Shaped, Not K-Shaped

Contrary to claims that India’s post-pandemic recovery has been K-shaped, Prof. Surendra argues that it is U-shaped, meaning that every section of society is experiencing upward mobility. In contrast, the economies of America and Europe have followed a K-shaped recovery, where certain sectors and income groups have recovered while others continue to struggle. He asserts that India’s overall development is in a much stronger position compared to these nations.

India’s GDP growth rate after the pandemic underscores this trend:

2021-22: 9.7%

2022-23: 7.0%

2023-24: 8.2%

Comparatively, the United States recorded a growth rate of 5.9% in 2021, followed by a significant slowdown to 1.9% in 2022 and 2.5% in 2023. Similarly, China’s economy expanded at 8.45% in 2021, but growth declined to 2.99% in 2022 before rebounding slightly to 5.20% in 2023. These figures highlight India’s stronger and more consistent post-pandemic economic performance.

French economist Thomas Piketty recently stated that income inequality in India is rising, suggesting that to address this issue, the government should impose a 2% wealth tax and a 33% inheritance tax on individuals with assets exceeding Rs 10 crore.

However, Prof. Surendra counters this argument, stating, "India’s tax-to-GDP ratio is already comparable to that of many developed countries. While a wealth tax could increase revenue, it would also discourage investment. Without investment, employment generation will suffer. Instead of focusing on taxation, India should prioritize economic growth—when the economy expands, wealth distribution will also improve naturally."