Manoj Saxena
NEW DELHI: India’s growth story has, in recent years, been marked by a curious contradiction. While headline GDP numbers remain robust and corporate earnings – especially at the top end – have shown resilience, broadbased consumption has struggled to keep pace. This disconnect raises an uncomfortable question: who is driving India’s growth, if not the average consumer?
The issue is that post-pandemic consumption has been distinctly Kshaped. This means that recovery after the pandemic has been uneven – while some groups are doing much better, others are still struggling. Urban, affluent segments have rebounded strongly, fuelling demand for premium goods, travel and discretionary spending. In contrast, large sections of the population, particularly in rural and lower-income urban segments, continue to face income stress. Wage growth has been perfunctory, and in some sectors, employment quality has deteriorated, limiting purchasing power.
Weak rural demand
Rural demand, traditionally a key pillar of consumption, has been especially weak. Erratic monsoons, input cost pressures and subdued agricultural incomes have constrained spending. Even Government welfare schemes, while providing a safety net, have not fully translated into discretionary consumption. The result is visible in sluggish sales of massmarket goods, from two-wheelers to FMCG staples.
Rural demand, traditionally a key pillar of consumption, has been especially weak. Erratic monsoons, input cost pressures and subdued agricultural incomes have constrained spending
Another structural factor is the shift in household balance sheets. The rise in retail credit – personal loans, credit cards and buy-now-pay-later schemes – has supported consumption to an extent, but it also signals a deeper stress. Consumption driven by borrowing rather than income growth is inherently fragile. As interest rates remain elevated, the burden of servicing this debt could further dampen future demand. Inflation has also played a role in eroding real incomes. Essential expenses continue to take up larger share of household budgets, leaving less room for discretionary spending. This ‘compression effect’ disproportionately impacts lower and middle-income groups, widening the consumption gap.
Psychological dimension
There is also a psychological dimension. Economic uncertainty, whether due to global volatility or domestic job concerns, has made households more cautious. Savings, particularly in financial assets, have seen an uptick among certain segments, reflecting a preference for security over spending. For businesses, this uneven demand landscape poses a strategic dilemma. While premiumisation offers higher margins, over-reliance on a narrow consumer base limits scale.
The real engine of sustainable growth lies in broad-based consumption, which depends on rising incomes and employment stability. Policy, therefore, has a critical role to play. Beyond headline growth, the focus must shift to income generation – through job creation, rural support and strengthening of small and medium enterprises. Without this, the risk is of an economy where growth is visible but not widely felt.
India’s consumption puzzle is a story of imbalance. Until growth translates into purchasing power for the many, demand will remain constrained – and the promise of a truly broad-based economic expansion will remain elusive.
