Decoding the Indian Consumer Basket

The Indian consumer market, a combination of vivid preferences and evolving consumption patterns, reflects India’s vast and diverse socio-economic landscape. With over 1.4 billion population, India is one of the most active and largest consumer markets in the world. As per UBS, after passing Japan and Germany, India is set to become the third-largest consumer market by 2026, while being behind the US and China. This growth is mainly led by the rise in affluent population (category of population with an annual income of over US$ 10,000). As per UBS reports, this category of population totalled 40 million people in 2023, which is expected to double by 2028 reaching 88 million.

Composition of the Indian consumer market

The Indian consumer market has been evolving rapidly. This has been mainly driven by improved digital literacy, making customers more informed, research-driven and demanding for a variety of products in the market. The Indian consumer market can be categorised into:

• Retail: Fashion, apparel, jewellery, accessories, and eyewear
• Fast-Moving Consumer Goods (FMCG) and services: Packaged foods, beauty, beverages, personal care, health and services like gyms, salons, and hospitals
• E-commerce: E-tail, food tech, e-ticketing, social media, and e-learning
• Agri-business: Agrochemicals and fertilisers, dairy, fresh produce, and grains
• Consumer durables: White goods, kitchen appliances, computers, cameras, mobile phones, and entertainment consumables
• Home improvement: Home furnishing, furniture, and sanitary ware

India’s macro-economic condition

Source: Statista, F - Forecasted

Income level is the primary determinant of the composition of the Indian consumer market. The disposable per capita income of the country has been on an upward trend in the past few years and is set to rise further. As per Statista, India’s per capita disposable income was US$ 2.11 thousand in 2019, and rose to US$ 2.54 thousand in 2023. It is projected to reach US$ 4.34 thousand by 2029. This growth in disposable income is driving changes in consumer spending patterns and enhancing overall purchasing power. This has been witnessed in the spending patterns of rural population as more individuals spend on non-food products as opposed to only basic essential items.

Evolving consumer basket

The Indian consumer basket varies significantly between urban and rural areas. With around 70% of the population living in rural areas, it reflects the diverse needs and priorities of these populations.

Trend in percentage composition of Monthly Per Capita Consumption Expenditure (MPCE) by item group since 1999- ‘00: Rural and Urban India

Source: MOSPI

Over the years, both rural and urban areas of India have experienced declining consumer expenditure on food. Basic items such as cereals have witnessed a sharp decline. In rural India, cereal expenditure as a percentage of the MPCE declined from 22.16% over 1999-’00 to 4.89% during 2022-23. Similarly, in urban India, it declined from 12.35% of the MPCE in 1999-’00 to 3.62% over 2022-23. However, spending on beverages and processed foods more than doubled in rural areas, increasing from 4.19% during 1999-’00 to 9.62% over 2022-23, depicting a shift in buying patterns.

On the contrary, non-food expenditure has steadily increased over the past few decades in both rural and urban India. In rural India, there has been a notable rise in the consumption of non-food items likes consumer services and durable goods. Consumer services expenditure increased from 2.98% over 1999-’00 to 5.08% during 2022-23, while spending on durable goods tripled from 2.62% during 1999-’00 to 6.89% over 2022-23. This surge highlights the evolution of spending patterns in rural areas, where consumers are increasingly spending more on non-essential items.

In rural areas, the share of food in monthly consumption declined to 46.4% in the latest survey of 2022-23 of the Ministry of Statistics, down from 53% over 2011-12. In contrast, the non-food consumption increased to 53.6% over 2022-23 from 47% during 2011-12. In urban areas, the share of food expenditure declined to 39.2% from 42.6%, while the share of non-food expenditure rose to 60.8% from 57.4%.

Role of technology

In the progress of the Indian consumer market, technology has played a crucial role. It has changed the way consumers shop, interact and make buying decisions.

• E-commerce and online shopping
  • The consumer basket in India has changed because of the rise in e-commerce. With the help of online shopping, consumers have access to a multiple products and services. This has helped the consumers in getting fair prices for products and services due to the price competitiveness in the market.
  • Rising internet penetration and growing disposable income are the primary reasons for the rise in e-commerce market. The ‘Digital India’ programme has facilitated this rise. The number of internet connections in India was 895 million, as of June 2023. Approximately 55% of these connections were in urban areas. The population with smartphones is expected to reach 1.1 billion by 2025, increasing significantly. This rise in internet and smartphone usage, along with rising income, has put India’s e-commerce and online shopping sectors on a growth path.
• Digital payments
  • Digital payments have changed the way people transact in India. Transactions have become smooth and stable, with the introduction of solutions such as mobile wallets and Unified Payments Interface (UPI). This has encouraged consumers to spend more on a variety of goods and services. In March 2024, the RBI governor announced that retail digital payments reached over 14,726 crore transactions in FY24 (up to February 2024) from 162 crore transactions in FY13. Services like food delivery, ride-hailing and online streaming have gained from this shift. In the near future, these services are expected to become an integral part of the consumer basket.

Opportunities in the Indian consumer market

The rapidly expanding Indian consumer market faces a few challenges that can also be viewed as opportunities to further enhance growth:

• The difference of income levels, cultural preferences and different consumption patterns across the country are the primary challenges faced by the consumer sector. However, these also offer businesses the opportunity to explore a wide range of market segments and offer tailor-made products to cater to the specific demands of different consumer groups. The rural and urban areas have witnessed a rise in the consumption of non-food items. This indicates upside potential for companies in this category.
• Digital transformation possesses the challenges of digital literacy and infrastructural ability of the country, which has a negative impact on e-commerce. By expanding their digital presence into rural areas, it is an opportunity for the government and businesses. This is expected to grow the e-commerce and online shopping markets even further.
• People have been shifting towards sustainability and health consciousness. This is opportunity for businesses to change their traditional way of doing business and innovate and differentiate themselves by using eco-friendly business practices and offer wellness-oriented products.

Summing up

It is important to take into consideration the country’s socio-economic diversity, cultural richness, and technological advancements, while looking at the Indian consumer basket. Along with India’s evolution, the consumption patterns of the people have also evolved. India's consumer market presents great opportunities as the country has a large population, a growing middle class, rising disposable incomes and growing aspirations. By 2026, India’s consumer market is expected to become the world’s third largest, because of the rising household income. The rising disposable income is boosting discretionary consumption, which is an opportunity for electronics, durables, and other aspirational industries. As India moves towards the path of development, the consumer basket will remain a key indicator of the nation’s progress and transformation.