India’s consumer map is being rapidly redrawn by key trends

Research from the New McKinsey Global Institute has found that one in every two upper-middle-income and above households is expected to be in Asia, and one in every two dollars of global consumption growth is expected in the region . In short, Miss Asia and you can miss half the story of the world’s consumption growth over the next decade, worth $10 trillion, of which India’s share is $1.8 trillion.

In a decade, India could boast half a billion more middle-income consumers than it does today; By 2030, 55% of India’s population could belong to what we call the ‘consumer segment’ – spending more than $11 a day in terms of purchasing power parity (PPP) and therefore not just basic things like food and housing. Being able to spend on things, but also discretionary items. This would be more than double the population share today at 24%, and six times the share of 9% in 2000, a notable upward change. The story does not stop here. The top of India’s income pyramid is expanding. The proportion of consumers in the two highest income levels of the consumer segment ($30-70 and spending more than $70 a day) could double to 20% by 2030.

With this compelling prospect of increasing prosperity, we cannot forget the grim reality of inequality. According to estimates by Credit Suisse (bit.ly/3CBm2Qm) for 2019, the bottom half of Indians by income could still hold only 3% of India’s wealth in 2030. The toughest, potentially growing inequality across Asia, including India. According to Asian Development Bank estimates (bit.ly/2XHGqzX), the number of people living in poverty in Asia (less than $3.20 per day in PPP terms) will increase by more than 170 million in 2020 due to the impact of the pandemic Might be possible. Furthermore, climate risk is likely to fall disproportionately on low-income people, potentially reinforcing inequality.

Despite the challenges, India has retained its long-term growth potential – an opportunity that will require companies to note and track significant demographic forces and behavior change.

Let’s take the demographics first. In India, two generations will come into focus this decade: a generation of ‘online-first’ consumers born between 1980 and 2012 (‘digital native’), which is expected to account for at least half of all consumption by 2030 , and those aged 60 and above, whose consumption can grow 1.6 times faster than in India, creating a segment for senior citizens to watch. This is partly a reflection of their increasing numbers. By 2030, the United Nations estimates that India could have 35-40% more senior citizens than today. But it also reflects the spending pattern of the seniors. Before 2020, seniors were slowly going ‘digital’, driven by a desire to stay in touch with their children. The pandemic accelerated this change (bit.ly/2W5nWcv), and senior spending patterns are likely to move rapidly online. Internet banking, ride-hailing and payment of utility bills are some of the most cited reasons why seniors use digital tools.

Women’s economic empowerment could create a new wave of opportunities, but it depends on greater progress – for example, by increasing their participation in formal work, increasing access to digital technologies and financial services. Potentially, increased women’s participation could add an estimated $1.4 trillion to India’s economy by 2030. It couldn’t be easier to seize this opportunity with mixed progress, at best, on bridging the gender gap. However, some bright spots are present.

In India and South Asia, the gender gap in mobile Internet access has narrowed by 16 percentage points since 2017, as 78 million more women have come online, according to GSMA 2020 data. New digital models can help more women join the labor force as entrepreneurs. But there is a need to increase digital literacy among women. The GSMA found that 35% of Indian women (compared to 26% of men) said that lack of knowledge about using the Internet was a hindrance.

Companies serving the Indian market need to consider not only the high-end demographic segments, but also the growing kaleidoscope of consumer segments—some brand new ones—that are becoming even more diverse in an era of rapid technological change.

Consumption preferences and behaviors are also shaping India’s consumer landscape. Technological change is a major driver of this as consumption is being digitised. The digital ecosystem is emerging, and various players are striving to meet the needs of new customers. Some are adopting a ‘super app’ model in which an app provides a one-stop-shop for a range of digital services. Leading in China, Super Apps delivers convenience, speed and choice. Many Indian super apps started out by offering high-frequency services such as payments, e-commerce or communications, but are expanding efforts to meet needs ranging from travel and entertainment to health and more.

Innovation in business models is breaking a well-established relationship between income and consumption in certain categories. A major consequence is that previously excluded consumers may now have access to new goods and services. Let’s take financial services. More and more people with low incomes can use e-wallets and mobile payments, and make the leap from traditional bank services. In all these areas, technology is democratizing consumption, thereby opening up the market to a large number of new consumers. Rising income (for many people), new consumers and new consumption curves lead to a lot of change that companies must adapt to. If they do, India offers many opportunities for development.

Jonathan Voetzel and Mahima Chugh, respectively, are directors of the McKinsey Global Institute; and Partner, McKinsey, Mumbai office.