Indian consumer market to see strong growth

19 July 2017 Consultancy.uk

Consumer spending in India is set to increase to $4 trillion by 2025. The country will see considerable expansion to the top two tiers of spending groups, whose share of total consumer spending is projected to reach 40% by 2025. The country's rapidly proliferating internet access is likely to see online shopping increase by 10%, along with online influenced buying behaviour which is projected to be involved in 25-30% of total spending.

The Indian economy is expected to see strong growth in the coming decade, with conservative estimates indicating growth of between 6-7% up until 2025. Consumer expenditure however, is set to quadruple over the same period, with growth rates of 12% CAGR, with the total market to hit $4 trillion by 2025 – making it the world’s third largest consumer market.

In a new report from Boston Consulting Group, titled ‘The New Indian: the many facets of a changing consumer’, the strategy consulting firm considers the distribution of growth across the market as well as the effects of digital channels on the market.

In India income distribution is evolving as affluence rises

The research, which surveyed 10,000 Indian consumers across the country, shows that the composition of the main consumer groups in the Indian economy are set to change significantly over the coming decade. The group of ‘elite’ households, those with incomes in excess of $30,800 per year in gross income, is set to grow from around 1.9% of the population in 2005 to around 5% by 2025, while the second most affluent group, with incomes upwards of $15,400, is projected to increase its share of income from 8% in 2005 to 20% by 2025.

The number of households at the bottom of the income scale are meanwhile set to decrease steadily, from 31% of all households last year to 18% of all households by 2025.

Three aspects of India’s changing shape of consumption

In terms of consumption trends, considerable changes are afoot. The two highest income groups are set to increase their respective share of consumption, from 27% of the total market share in 2016 to 40% in 2025. The change in consumption is largely won from the next billion and strugglers categories, whose respective members will decrease their share of total spending between the time periods from 38% and 11% respectively to 30% and 6% respectively.

In addition, the firm finds that the number of ‘nuclear families’ will continue to increase to 2025, up from 68% last year to 74%.

Affluence will be much more widespread by 2025

The research also found that various metropolitan areas are set to see changes in growth levels. Urbanisation across the country is set to hit 40% by 2025, accounting for around 60% of total consumption.

The distribution of affluence is also set for considerable change, with the number of cities where more than 40% of the population is an elite or affluent household set to hit 48 by 2025, up from zero last year, while the number of cities where 21-40% of the population is elite or affluent is set to increase from 64 to 270. The distribution of affluent cities is projected to be relatively even across the country as a whole.

Digital influence will far surpass online spending

Digital shopping

The effects of digitalisation on consumer behaviour also showed themselves to be in a state of flux. Internet penetration continues to rise in the country, with those using the internet in India forecast to increase to 55% of the population.

The increase in internet access is also set to see the number of online shoppers and the number of digitally influenced shoppers increase steadily, to between 400 and 450 million and 300 and 350 million respectively. The firm expects e-commerce to hit around $130-150 billion by 2025, or 8-10% of total retail sales.

According to the study, the biggest impact of digitalisation will be the growing influence on retail spending, which could come to affect 30-35% of total retail spending – thus up to $500-550 billion.

“India’s consumer market is poised for fundamental change,” remarked co-author and BCG Partner, Nimisha Jain. “As the consumer market continues to grow and evolve, companies will need to shed conventional wisdom, try multiple business models simultaneously, and be prepared for rapid change internally to adapt to changing consumer needs and behaviours.”

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