India’s wealth gap expands as ‘premiumisation’ leads consumer landscape: says report

LONDON: According to Indus Valley Annual Report 2025 while India boasts a population of 1.4 billion, approximately a billion individuals lack the financial means to spend on discretionary goods or services. According to findings from Blume Ventures, a venture capital firm, the effective consumer market for startups and business owners in India closely resembles Mexico’s, with about 130-140 million people being identified as part of the consuming class, reported the BBC.

Additionally, around 300 million people are categorized as ‘emerging’ or ‘aspirant’ consumers, indicating that they are hesitant to spend and have only recently begun to explore their purchasing options, aided by the convenience of digital payment systems.

The report highlights that the consuming class in India is not ‘widening’ but rather ‘deepening’, signifying that the wealthy population is not significantly increasing, even as those already affluent accumulate more wealth.

This trend is shaping the consumer market uniquely, promoting the rise of ‘premiumisation’. Brands are capitalizing on this by focusing more on high-end, upgraded products aimed at the wealthy rather than on mass-market options.

This shift is reflected in the rapid sales growth of ultra-luxury homes and premium smartphones, while lower-cost variants struggle in comparison. Affordable housing now represents only 18 percent of India’s market, a drop from 40 percent five years ago, and branded goods are gaining a larger market share. The “experience economy” is also flourishing, as evidenced by the high demand for expensive concert tickets for international artists like Coldplay and Ed Sheeran.

Companies that have adjusted to these market changes have thrived, according to the report’s author, Sajith Pai. “Businesses that focus primarily on the mass market or lack premium product offerings have lost market share,” he noted.

The report supports the established view that India’s recovery from the pandemic has been K-shaped, with the wealthy becoming richer while those less fortunate experience a decline in purchasing power.

This growing economic inequality has been a long-standing trend pre-dating the pandemic. Currently, the top 10 percent of earners in India control 57.7 percent of national income, a significant rise from 34 percent in 1990, while the bottom half’s share has fallen from 22.2 percent to 15 percent. The recent consumption slump is exacerbated by a decline in purchasing power, dwindling financial savings, and rising debt levels among the general populace.

The Reserve Bank of India has also restricted access to easy unsecured loans that previously sustained demand after the Covid pandemic. Much of the consumption from the ‘emerging’ or ‘aspirant’ consumer segments was fueled by such borrowing, and limiting this access will inevitably affect consumption patterns, according to Pai.

In the short term, two factors may help stimulate spending: an anticipated increase in rural demand due to a record harvest and a $12 billion tax break provided in the latest budget, which may modestly enhance India’s GDP by over half a percent, as per Pai.

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Nonetheless, significant long-term challenges loom. The middle class, which has traditionally fuelled consumer demand, is facing financial strain, as wages have stagnated.

Data from Marcellus Investment Managers reveals that the middle 50 percent of India’s tax-paying population has seen their income stagnate across the last decade, translating to a halving in real income when adjusted for inflation.

This financial squeeze has decimated the savings of the middle class, with the Reserve Bank of India reporting that household financial savings are nearing a 50-year low. Such economic pressures suggest that products and services typically associated with middle-class spending are likely to suffer in the coming years.

Additionally, the report indicates that white-collar jobs in urban areas are becoming increasingly scarce due to automation, as artificial intelligence takes over clerical and routine tasks. The percentage of supervisors in manufacturing units has significantly decreased, adding to employment concerns.

The government’s recent economic survey highlights these issues, stressing that labour displacement from technological advancements poses a significant risk for India’s services-driven economy. With a considerable share of the IT workforce engaged in low-value services most susceptible to disruption, a decline in consumption resulting from workforce displacement could create considerable macroeconomic challenges. The survey warns that should worst-case scenarios unfold, this could derail India’s economic growth trajectory.