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India stands on the brink of a transformative phase in its economic evolution, driven by a consumption boom that is redefining its consumer landscape. This surge in demand is propelled by a unique combination of factors—favourable demographics, rapid urbanization, and rising aspirations among its population.
Demographic Dividend: A Young and Dynamic Population
At the core of India’s consumption story lies its demographic advantage. With over 1.4 billion people, India is the world’s most populous nation. More significantly, nearly two-thirds of its population is under the age of 35, making it one of the youngest countries in the world. This youthful demographic not only ensures a robust labour force but also fuels substantial consumer spending. Younger consumers are aspirational, tech-savvy and open to experimenting with new products and services. They prioritize convenience, quality, and personalization, driving the rise of e-commerce platforms, digital payment systems, and subscription-based models. Millennials and Gen Z (1997-2015) are early adopters of trends such as online grocery shopping, curated lifestyle products, and meal kits.
Additionally, the burgeoning middle class, projected to reach 800 million by 2030 (source - CLSA), is becoming the backbone of this consumption wave. Rising disposable incomes have led to increased spending on discretionary items like electronics, fashion, travel, and entertainment. Brands that can cater to the evolving preferences of this segment are likely to thrive.
Urbanization: The Emergence of Tier-II Cities and Smart Towns
Urbanization is another pivotal factor fuelling India’s consumption boom. Currently, about 36% of India’s population resides in urban areas (source - HCES 2022-23, Nuvama Research, MoSPI), but this figure is expected to grow significantly in the coming decades. Government initiatives aimed at developing smart cities and improving infrastructure are accelerating urban migration, transforming smaller towns into vibrant economic hubs. Tier-II and Tier-III cities are emerging as key drivers of consumer growth. These regions are experiencing a surge in purchasing power due to better connectivity, improved access to education and healthcare, and exposure to global brands through digital channels. Unlike metropolitan cities where markets may be saturated, these smaller towns offer untapped potential for businesses looking to expand their reach.
For instance, fast-moving consumer goods (FMCG) companies are customizing their product offerings to suit local tastes while leveraging modern retail formats. Similarly, sectors like real estate, automobiles, and financial services are witnessing heightened activity in non-metro areas. The widespread availability of affordable smartphones and internet has further bridged the urban-rural divide, enabling rural consumers to actively participate in the formal economy.
Rising Aspirations: From Necessities to Experiences
Perhaps the most defining aspect of India’s consumption boom is the shift from necessities to aspirational spending. As per capita GDP improves, the living standards improve, Indian consumers are no longer content with merely meeting their fundamental needs; they now seek experiences and lifestyles that reflect their ambitions and social standing.
India’s consumption-driven boom is not limited to the traditional FMCG sector. It spans multiple industries, including consumer durables, telecom, services, automotive, healthcare, power, and real estate, all benefiting from the broader growth in demand. For investors, these sectors offer opportunities, with the consumption theme serving as a focal point for tapping into the market's vast potential. Newer industries are rising which shape the way people consume.
- E-commerce and retail: Online shopping has become synonymous with convenience and choice. Digital platforms are offering everything from daily essentials to luxury items, catering to diverse consumer needs. Quick commerce has become the need of the hour with more than 20% of the population now using such services (Source- DHRP of a food delivery company).
- Health and wellness: There is a growing emphasis on fitness, mental well-being, and preventive healthcare. Yoga studios, fitness apps, organic food brands, and wellness retreats are thriving as Indians prioritize self-care.
- Travel and leisure: Domestic tourism is booming, with young professionals and families exploring destinations within the country. International travel is also gaining traction, reflecting a desire for global exposure.
- Education and skill development: Parents are investing heavily in their children’s education, enrolling them in premium schools, coaching centres, and for extracurricular activities. Online learning platforms have further democratized access to quality education.
- Technology Adoption: From smart homes to electric vehicles, Indians are embracing cutting-edge technologies that enhance their quality of life. The smartphone revolution has been particularly transformative, acting as a gateway to digital services. Low-cost data acts as a catalyst to catapult this digital revolution even further still leaving room for future penetration compared to other countries.
Source – Report from IME Capital
As India progresses toward becoming a USD 5 trillion economy, its consumer market is expected to undoubtedly remain a cornerstone of growth. The challenges and the promise lie in channelling this growth momentum responsibly, ensuring that every corner of the nation contributes to make this come true. In essence, the story of India’s consumption boom is not just about statistics; it is about people who are ambitious, connected, and eager to shape their own futures along with other factors which are creating an environment ripe for positioning India as one of the largest consumer economies globally.
The author of this article is the Chief Investment Officer of ITI Mutual Fund.
Disclaimer - The views expressed are purely personal in nature. The statements herein may include future expectations and other forward-looking statements that are based on our current views and scenarios. The information herein alone is not sufficient and shouldn’t be used for development of an investment strategy or construed as investment advice. Please consult your financial advisor before investing.
Mutual Fund investments are subject to market risks, read all scheme related documents carefully.
