The Evolving Consumption Story Bound To Fuel India’s All-Round Growth

By 2047, over 60 per cent of India’s population is expected to live in urban centers. This migration will drive demand for urban-centric products, real estate and services, while also accelerating the shift toward a consumption-driven economy

With a population of 1.417 billion, India now stands as the most populous country in the world. A significant demographic advantage is its large working-age population, which exceeds 50 per cent of the population.

This demographic structure supports sustained consumption growth, making India’s consumption story a long-term structural opportunity for businesses and investors. The large and growing consumer base, combined with rising incomes and increasing urbanization, positions India as a key driver of global demand in the coming years.

As India’s GDP per capita rises, spending on FMCG and consumer durables has increased. The FMCG industry reached $121.8 billion in 2023, with rural areas contributing 35 per cent of sales. Growth is driven by shifts to organized markets and e-commerce.

The consumers are increasingly opting for higher-quality and more diverse products. This trend, driven by rising incomes and affluent households, is expected to grow, with around 80 million affluent households by 2030. As a result, brands are catering to this demand by offering premium products and services, helping drive overall consumption.

With its per capita GDP now over $2,500, India is positioned at this inflection point. As disposable incomes rise, spending patterns are shifting, with consumers increasingly focusing on high-end goods and services.

This shift is expected to drive growth in sectors like luxury cars, electronics, branded apparel, and healthcare, paralleling China’s transformation.

While metro cities continue to be a large contributor of the consumption spends, it is important to highlight that spending is reaching the grassroots as well ramping up overall consumption spending. This long-term trend is also driving down inequality between urban and rural India.

By 2047, over 60 per cent of India’s population is expected to live in urban centers, up from the current 36 per cent. This migration will drive demand for urban-centric products, real estate and services, while also accelerating the shift toward a consumption-driven economy.

The FMCG sector saw a robust recovery, with average spending increasing by 16.76 per cent in FY24. This is a sharp turnaround from the 21.94 per cent decline experienced in FY23, signaling that consumers are once again prioritizing daily essentials and discretionary goods after a period of cautious spending. The consumer durables sector also rebounded with a 3.74 per cent increase in average spending following a 7.64 per cent drop in FY23. The aviation sector saw average spending grow by 6.36 per cent in FY24, while railways posted an 8.16 per cent increase. India has doubled its airports in the past decade and aims to add 71 more in the next five years.

There are only 0.4 hotel rooms per million population, which is far below China (14.3) and the USA (9). As more people travel, demand for hospitality services will surge, making it a key growth area. This growth underscores the rise of the country’s travel economy, driven by millennials and improving disposable incomes.

Indians are increasingly valuing experiences like travel, leisure, and adventure, marking a shift in spending consumer behavior towards experiential consumption.

Media and entertainment also saw a significant boost, with average spending growing by 29.30 per cent in FY24. The sector has evolved from being a discretionary luxury to an essential part of daily life, with consumers allocating more of their household budgets to entertainment. The rise of millennials and increasing per capita incomes in India are driving a shift from goods consumption to experiences, particularly in travel and leisure.

Spending in aviation has surged by 27.42% from FY22 to FY24, with India becoming the third-largest domestic aviation market. The government plans to increase the number of operational airports from 148 to 220 by FY25.

Similarly, the railway sector spending grew by 56.35 per cent in the same period, boosted by significant increases in both freight and passenger traffic post-pandemic.

India’s primary engine is domestic consumption. Domestic market is crucial for propelling India to the next stage of economic development. As incomes grow, spending on both essential and discretionary items will increase, creating a multiplier effect that boosts industries like consumer durables, automobiles, healthcare, and retail. India’s large, youthful population, coupled with rising income levels, provides a strong foundation for long-term growth in consumption-driven sectors. This premiumisation trend is driven by increasing disposable incomes, financing options, and changing consumer preferences for high-quality, feature-rich products across sectors. This trend as regards consumption market continued strongly in the first half of 2024. The consumption growth is at a pivotal moment, driven by a combination of rising incomes, demographic shifts, and structural changes like digitalization and urbanization.

The key factors include a young and growing population, increasing discretionary spending, digitalisation and the rise of premiumization, particularly in urban areas.

As India transitions towards becoming one of the world's top consumer markets, sectors like consumer durables, retail, healthcare, luxury goods, FMCG, aviation, and e-commerce stand to benefit significantly.