MUMBAI: India may be home to 1.4 billion people, but around a billion of them do not have enough money to spend on discretionary goods or services, according to a new report released by venture capital firm Blume Ventures last month.
Another 300 million fall under what the report describes as “the aspirant class”, who largely spend on small ticket purchases such as clothing.
Only 140 million people – or 10 per cent of the population – make up “the consuming class” in India, with sufficient disposable income for discretionary spending.
INFLATION, STAGNANT INCOMES
Despite wealth in the world’s fastest-growing major economy increasing by 7 per cent a year on average between 2010 and 2023, the report noted that most of this money ended up in the hands of the rich.
Indicators, including spending on domestic flights and vehicles, showed muted growth, which suggested that spending did not grow much in the mass consumer market.
Observers believe inflation, stagnant wage growth and the rising cost of living are to blame, with wealth still being too concentrated among a few.
The Chaurasiya family, for instance, rarely have money to spend on non-essential items and treats such as dining out.
Breadwinner Rishi Chaurasiya earns 35,000 rupees (US$401) a month as a supervisor in a factory, above the average salary in India.
But this is barely enough for him and his household to get by.
“I have to take care of our household expenses, my children’s expenses, and if we go out somewhere, that also costs money,” he said.
“If my salary doesn’t increase, how can I afford all these things?”
SHORING UP SLOWING ECONOMY
But some analysts believe that could soon change, with many more people to be added to India’s consumer base over the coming decade.
“If we look at discretionary spending in India, of course it’s been small, it’s been low, because the per capita income in India has still not been a very large number,” said Naveen Kulkarni, chief investment officer at stock broker Axis Securities.
“But the government is doing a lot of things – manufacturing, which will create more jobs, taxation structures (and) direct benefit transfers, which will help wealth distribution,” he added.
“In the next few years, we’ll see more people getting added to the discretionary consumption pie, and more likely we’ll see a very strong growth in discretionary consumption over the next decade.”
The country’s annual gross domestic product (GDP) is expected to grow by 6.5 per cent in the current financial year, according to official projections.
The government is also making efforts to help drive the economy forward.
In February, India’s Finance Minister Nirmala Sitharaman announced major tax breaks for the middle class in its federal budget worth $11.5 billion.
Individuals with annual income up to 1.2 million rupees will effectively be exempt from paying income tax from April, she said, raising the cap from 700,000 rupees.
These tax breaks will affect about 10 million individuals in Asia’s third largest economy, according to Bloomberg.