Rising importance of Indian middle class and its impact on Indian economy

You may recall the iconic jingle “Humara Bajaj” one of India’s first inclusive campaign which imbibed Indian middle-class aspirations. The 2-wheeler was not just looked upon as a mode of transport but evoked a sense of pride and struck a chord with the masses.

It is this quintessentially Indian middle class that we will be talking about which is hard-working, frugal, but aspiring and humble. Indian middle class has gained prominence and is set to become a force to reckon with.

Demographic pivot

“Never before in recorded history have so many people been in a position to rise so quickly”. Gurcharan Das, author and former CEO of Procter and Gamble India made this comment referring to the rise of India’s “new middle class”.

What Mr. Das meant was that India is witnessing a massive shift towards a middle-class society. McKinsey claimed it to be India’s “sone ki chidiya” or “bird of gold” back in 2007, a phrase merchants used thousands of years ago to describe the country’s vast economic potential.

1 out of every 3 Indians is middle class in India with an annual income between Rs. 5-30 lakh. This number is expected to double by 2047, placing 2 out of every 3 Indians in the category. Recently, two research reports published, point towards this fundamental demographic pivot that is underway in India.

UNDP report

United Nations Development Programme in its latest report on global poverty 2022 revealed that India had successfully lifted 415 million out of poverty in 16 years ended 2021.

PRICE Report

People’s Research on the Indian Consumer Economy (PRICE) report disclosed that India’s middle class would nearly double to 715 million by 2030-31 and would grow to a staggering 1 billion by 2047, if India implements necessary political and economic reforms.

Both reports point to the same thing – India is in the midst of profound demographic change and a large chunk of people are going to climb up the social ladder and join the ranks of the middle class.

Such a drastic makeover is rare and has large implications on the country’s purchasing power. This is precisely what Morgan Stanley, the global financial services company, had argued that the next decade was India’s.  

Before we discuss the implications of this trend, let’s understand what constitutes a typical middle class

What do you really mean by Middle class?

Almost everyone that you come across identifies themselves as Middle class maybe to express a sense of solidarity or being part of the chunk which is – neither too poor nor too rich.

This opens up the question, how do you define – Middle Class? Is it on the basis of monthly income, wealth accumulated, consumption trends, or simply a state of mind?

If we take any preferable definition, the Middle-class Indian is probably that restaurant waiter who serves you wood-fired pizza, the security guard in your housing complex, the beauty technician ladies on Urban Clap, your neighbourhood grocery store owner, the bicycle repair shop owner, or the guy who is delivering the milk on his TVS.

So, what sets them apart?

Gone are the days when an average middle-income household yearned basic necessities like roti, kapda and makaan. This new section of people now wants to indulge in buying occasional experiences and want a real chance of moving up the consumption ladder.

Adding to this is the increase in ownership of a mobile or access to the Internet, which is no more a prerogative of the rich. This era of cheap data combined with the spread of broadband even to rural India meant that Internet access is no longer the preserve of metros.

By 2030, the Indian economy will graduate from being led by the bottom of the pyramid to one driven by its middle class. It will continue to remain one of the youngest nations on the planet and will be home to more than one billion internet users. The new Indian consumer will be richer and more willing to spend and will have very specific preferences. While income and age were traditional drivers of preferences, but in the future, preferences will be significantly driven by a consumer’s degree of connectedness to digital media and online platforms. More “connected” consumers will likely spend well, own durables, opt for premium products and be more aware of the brands that suit their needs.

Indian middle class represents 50% of the income earned, 48% of expenditure, and 56% of savings.

While China’s middle class is currently larger than that of India, its private consumption still accounts for a very small part of overall GDP growth. On the contrary, India’s private consumption is almost 60% of the GDP, and private consumption growth has accounted for 70% of Indian growth since 2000.

Conclusion: Don’t take them for granted

The upcoming changes in the Indian consumer market will create major opportunities and challenges for Indian and multinational companies alike. Businesses that cater to the needs of this aspiring group, keep price points attractive to reflect the realities of Indian incomes, build brand loyalty and adapt to a fast-changing market dynamics are more likely to flourish in this super evolving times.

Cheers,

Ruchi Mehta

https://www.linkedin.com/in/ruchimehta-tavaga/

Disclaimer: This write-up is solely for educational purposes. This in no way should be construed as a buy/sell recommendation. Please consult your investment advisor before investing.

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