Expectation that a good monsoon will revive rural demand is grounded in several factors: Rajesh Shukla, MD and CEO of PRICE

The Indian economy is witnessing a significant shift towards premiumisation, driven primarily by the large middle class and affluent consumers, says Rajesh Shukla, Managing Director and CEO, People Research on India’s Consumer Economy (PRICE). In an interview with BT, he says that middle-class and rich households will drive nearly $2.9 trillion of incremental consumption spend by 2030. He, however, cautions that the lowest 20% of the income pyramid still faces challenges in returning to pre-pandemic financial status. Edited excerpts:

Q. There seems to be a consumption conundrum in the spending patterns of Indians. While high-end products see robust sales, the demand for more affordable goods remains muted. What are the reasons for this?

The Indian economy is witnessing a significant shift towards premiumisation, driven primarily by the large middle class and affluent consumers who prefer high-end products like luxury cars, upscale houses, leisure holiday trips, apparel, and personal care. This growth in premium consumption is not confined to metropolitan elites, the aspirational households in boom towns, niche cities, and developed rural areas are also contributing significantly to this trend. Influenced by global trends and digital media, these consumers are demanding premium offerings, highlighting the need for innovation and quality in products and services.

The pandemic has significantly impacted the bottom 60% of India’s income pyramid, leading to depleted savings and increased debt as individuals struggled with the economic fallout. Despite some recovery in this segment post-Covid, the lowest 20% still faces challenges in returning to the pre-pandemic financial status. This group, primarily consumers of low-end products such as affordable two-wheelers and basic FMCG items, has shifted its focus towards essential spending, emergency savings, and debt repayment. The situation is exacerbated by high inflation and limited job opportunities, preventing many from regaining their financial stability. This shift towards necessary expenditures and the emphasis on saving has curtailed discretionary spending, significantly affecting broader consumer market dynamics.

Q. The Household Consumption Expenditure Survey results also showed a move towards premiumisation. Could you give your take on this please?

Indeed, it reflects how household spending priorities are evolving, particularly post-Covid, as there is a clear trend towards investing in lifestyle, well-being, and aspirational products over basic necessities. This shift towards quality and premium spending is indicative of a broader desire among consumers to enhance their quality of life and opt for products that not only provide convenience but also offer significant health benefits. The increased expenditure on health-related products and consumer durables further highlights this structural shift in the consumption patterns across households.

Q. Could you share some data on how the household consumption pattern has changed?

India has been evolving as one of the world’s most dynamic consumption environments and is expected to maintain steady economic growth. Indian consumers in 2030 will be richer and as young and as diverse as they are today. At the same time, innovation and technological development will elevate consumption models to the next level. Rising incomes and the expansion of the middle-class and high-income segments will reshape future consumption. Middle-class and rich households will drive nearly $2.9 trillion of incremental consumption spend by 2030, nearly all of the incremental spending will be led by consumers upgrading to premium offerings or adding new categories of consumption.

Specific categories will drive significant growth in spending. Households moving up an income level will spend two to three-and-a-half times more on essential categories such as food, housing, transport and communication and also on apparel and personal care. They will also spend four to six times more on well-being, entertainment and household services. Those entering the upper middle class will drive an increase of 15–30% in penetration of consumer durables. Affordable, mid-priced products and services will drive aggregate growth. By 2030, 53% of incremental spending will be led by middle-class consumers. Nearly half of the total incremental spend ($1.5 trillion) will be on “more of the same” products and services. Price points similar to those today will continue to be important. Premiumisation and new category adoption will primarily be led by middle-class and rich consumers. The remaining $1.6 trillion incremental spend will be led by consumers upgrading to packaged, branded or higher-priced offerings, or adding new products or services to their consumption routine. Consumers will especially upgrade or expand their choices in apparel, personal care and food and beverages. India’s income growth will drive a huge opportunity for packaged, branded offerings.

Q. FMCG companies expect a good monsoon to help revive rural demand. What are your thoughts on this?

The expectation is grounded in several factors. A successful monsoon typically results in increased agricultural income and economic stimulus in rural areas, driving higher purchasing power and demand for essential FMCG products. With ongoing investments in distribution networks, FMCG companies are well-positioned to capitalise on this increased demand. However, potential challenges such as inflation, shifting consumer preferences, and pandemic-related disruptions could impact the extent of this revival, necessitating adaptability and responsiveness from FMCG companies to fully leverage the opportunities presented by favourable agricultural conditions.