May 6, 2024
Moderate consumption growth is projected at 4-5% in the current and upcoming fiscal years
Urban mass-market demand may soften due to corporate wage and personal loan growth slowdown
The rural segment is expected to rebound with normal monsoon, lifted export bans, and potential capex recovery
India's resilient domestic market and 'China+1' supply chain shifts provide an economic advantage contingent on quality job creation
According to UBS’s latest report, India is poised to claim the third spot as the largest consumer market by 2026, surpassing Germany and Japan. The report highlights a significant rise in the affluent population. An estimated 40 million individuals in India fall into this category as of 2023, representing a 4% share of the population aged 15 and above. This affluent segment, characterised by an annual income exceeding $10,000, is expected to more than double over the next five years, reaching approximately 88 million people by 2028.
UBS predicts a moderate growth in consumption, projecting a 4-5% increase in the current and upcoming fiscal years, which is lower than the 6.5-7% average annual growth observed between FY11 and FY20. While urban mass-market demand may slightly decline due to softening corporate wage growth and decreasing personal loan growth, the premium and affluent segments are anticipated to thrive.
The rural segment is also expected to experience a rebound, particularly with normal monsoon conditions, the removal of export bans on agricultural commodities, and potential capex recovery. Notably, the recent lifting of the ban on onion exports is seen as a positive development, albeit with certain conditions.
Experts attribute constraints on real wage growth to inflation, which the Reserve Bank of India forecasts to ease to 4.5% in FY25 from an average of 5.4% in the previous fiscal year. Despite these challenges, UBS views India’s resilient domestic market as a key factor supporting its economy, emphasising the need for quality job creation to sustain consumption growth.
The report underscores India’s advantage in its sizable domestic market’s capacity to absorb manufacturing output, positioning it favourably compared to other Asian countries in benefiting from ‘China+1’ supply chain shifts. This advantage is complemented by policy initiatives and structural reforms.
UBS attributes the consumption dichotomy in India to post-pandemic income disparities, increased access to consumer credit, and evolving consumer preferences.
Source: Economic Times