Significant gap in Indian consumption; K-shaped trend continues: report

Mumbai: A Swiss broker said on Tuesday that there is a “significant gap” in the Indian consumption story and the K-shaped trend is likely to continue in the near future. “India’s consumption story reflects a significant gap, driven by a resilient economy but marked by a stark contrast in spending patterns,” UBS India economist Tanvee Gupta Jain said in a note. “…the gap between affluent household demand and broad-based household demand persists, accentuated by factors such as income inequality, greater access to consumer credit and declining household savings,” she added.

The brokerage expects household consumption growth to “remain subdued” at 4-5 percent in FY25, which is lower than the trend observed in previous years. It may be noted that post-pandemic concerns have been raised about K-shaped growth representative of rising inequality in the country. Some economists have made their disapproval public, also calling the pandemic a “leveller” for reducing inequality.

According to the UBS report, India’s household consumption has almost doubled over the past decade to reach $2.1 trillion by 2023, with a compound annual growth rate of 7.2 percent. However, household consumption growth remained subdued over the past two years, the report said, adding that it was the affluent segment that witnessed a significant increase in demand. The brokerage said the recovery in consumption growth is ‘uneven’, pointing out that there has been faster growth in sales of premium cars, homes costing over Rs 1 crore, smartphones costing over $300, or Rs 25,000 , while entry-level and mass-market goods segments have seen moderate growth post-pandemic.

It attributed the gap in consumption to factors such as the income continuity of those at the top of the pyramid compared to the bottom, limited budget support for vulnerable groups and lower household savings due to weaker incomes. The ‘K-shaped’ consumption pattern will continue even after the pandemic, the report said, adding that the urban economy continues to outperform the rural economy’s post-pandemic recovery. However, despite the gap, India is on track to become the world’s third largest consumer market by 2026, the report said.