India’s K-shaped consumption pattern continues post pandemic

They’re the low-income category or the poor and they make up a whopping 50% of India’s working population. The World Inequality Lab suggests the skewed wealth distribution is a good reason to consider restructuring the tax code to account for both income and wealth. Moreover, it suggests that broad-based public investments in health, education and nutrition are needed to enable the average Indian, and not just the elites, to meaningfully benefit from the ongoing wave of globalisation. Gradual income inequality has translated into a more stark wealth inequality in the country. While 57.7 per cent of income is in the hands of the top 10 per cent of people, 65 per cent of wealth lies with them.

As per USB data, the bottom 20% households in both urban and rural areas end up spending almost 80% of their overall consumption on food, fuel, light (electricity), and clothing. On the other hand, the top 20% urban households spend about 50% for consumption of services and discretionary items, like travel, vacation and leisure etc. Even the top 20% of rural households spend about 30% on consumption of services and discretionary items. A UBS report says, though, rural economy has recovered from the lows of the pandemic, the urban economy continues to outperform.

The Rich have an outsized share—15 per cent—of India’s disposable income, which is leftover cash after all the routine must-pays are taken care of. Three-quarters of them live in urban India, and most of their baguette-winners are self-employed. These are typically men who run their own businesses, consultancies, clinics, law firms, design studios, etcetera, and often have wallets bursting with cash at odd hours in odd places. While categories such as premium cars, housing and smart phones seem to be doing well, demand for entry-level and mass-market goods such as small cars, two-wheelers and affordable housing has been muted. For instance, demand for luxury/premium cars, mid-size SUVs and large UVs rose 34% in FY24, while demand for entry-level variants of small cars and sedans dipped 16%. Most capital gains are taxed at 0%, 15%, or 20% but some exceptions exist for items like collectibles and qualified small business stock.

Even more concerning is the fact that education’s percentage of overall spending has decreased over the past ten years, falling to 10.4 in 2020–21. According to the study, the wealthiest households are concentrated in urban areas that solely estimate the population proportion in each quintile. It is not income, after all, but wealth that stops people mid-sentence and makes them blink and gawk (and occasionally nauseous). What you earn every year may have little bearing on what you have to your name. Your uncle’s abstract art may not qualify, but that vintage car in the old garage might. Also, income is just another household measure, while wealth marks individual status that can hit your testosterone levels in utterly unpredictable ways.

Tax-free Filings Drop

Now we’re not saying that the crowd on the lower threshold is buying Coldplay tickets and the latest SUVs. But it’s definitely those folks in that vicinity that don’t seem to have too much of a problem with money. At the same time, limited fiscal support for vulnerable sections of society during the pandemic amplified the gap, it says. At the very top, acquiring one sort of aura or another is almost a rite of passage.

Income growth

So yeah, Indians all love saying they’re middle class, but if you earn more than ₹8.5 lakhs in a year, who’re you kidding! Colour yourself rich and elite because only 4% of India’s working age population fit that bucket. Even other Fast Moving Consumer Goods (FMCG) companies such as Colgate Palmolive, and income pyramid india Britannia have expressed similar sentiments. They’re worried that people aren’t buying biscuits and soap like they used to.

Business Today’s latest Issue – On Stands Now

• Compensation is usually in the form of money, but it can also come in other forms.
• Households in India are generally saving less partly due to weaker incomes or a greater tendency to consume and also rising debt service obligations due to higher financial liabilities, says UBS.
• State governments may also have their own income state regime, but it generally does not vary widely from that of the federal government.
• At present, it is the fifth-largest and one of the fastest-growing economies.

According to the Internal Revenue Service (IRS), income is “money, property, goods or services.” It indicates that most income is taxable even if you don’t use it right away or if it’s paid to someone else on your behalf. The pursuit of affluence is a timeless endeavor fueled by a myriad of motivations, each reflecting the diverse aspirations and desires of individuals. Delving into the intricacies of this quest unveils a complex interplay of factors driving people towards wealth and luxury. The one ray of light that the government has pointed out is that its ‘Future Expectations Index’ where people indicate what they feel about the economy is positive. And that sentiment might be enough to keep India’s middle class consumption machine chugging.

The Wealth Report

The only quibble is that India’s Wealth Pyramid is hazy in comparison with its Income Pyramid. It’s a snapshot formed by the statistical equivalent of capturing a reflection of a reflection in the shimmer of a mirage in the midst of a dust-storm. National income, measured by statistics such as net national income (NNI), measures the total income of individuals, corporations, and government in the economy. For more information see Measures of national income and output. The theoretical generalization to more than one period is a multi-period wealth and income constraint. For example, the same person can gain more productive skills or acquire more productive income-earning assets to earn a higher income.

That’s because there are 24 million millionaires worldwide, which could be the population of a small country. Also, of the 170,000 in India, 147,400 have assets in the $1–5 million range, which is—ahem—modest by global standards of wealth these days. They have more money, of course, as the old quip has it, but also much more to spend than a simple income comparison would have you think.

Accounting definitions

At current prices, India’s household consumption nearly doubled between 2013 and 2023 to $2.1 trillion or ₹168 lakh crore (assuming $1 at ₹80) at compound annual growth rate (CAGR) of 7.2%. China’s 10-year CAGR is 7.1%; U.S. is at 5% and Germany at 1%. Data reveals stark regional disparities in the economic well-being of Annadata households, with nearly one-third of all poor and vulnerable farmers… For the purpose of U.S. federal income tax, income is divided into gross income, adjusted gross income, and taxable income. Most income is taxable unless it’s specifically exempted by law. Even if you don’t receive a form reporting income, you should report it on your tax return.

• The pursuit of affluence is a timeless endeavor fueled by a myriad of motivations, each reflecting the diverse aspirations and desires of individuals.
• About 11.4 per cent of India’s total wealth was in the hands of people in the bottom 50 per cent bracket in the year 1961; this nearly halved to 6.5 per cent in the year 2023, according to the World Inequality Database.
• Over the same duration, the wealth of people in the top 10 per cent rose from 44.9 to 64.6 per cent and the wealth of those in the top 0.1 per cent rose from a mere 3.2 per cent to a humongous 29 per cent.
• Household consumption in India, or the private final consumption, constitutes 60% of nominal GDP, currently.
• In 2023, 11% Indians earned more than $5,000, of which 4%, or four crore, earned more than $10,000.

At the same time, 61.2 crore people, or 72% of the country’s population was earning less than $1,500 as gross annual income. A total of 87% of the population earned less than $2,500 annual gross income, while only 4% earned more than $5,000. Another study, World Inequality Database (WID) Report, 2021 puts India in the category of ‘extreme inequalities’ countries. The report states that ‘the average national income of the Indian adult population is INR 204,200. While the bottom 50% earns INR 53,610, the top 10% earns more than 20 times more INR 1,166,520. While the top 10% and top 1% hold respectively 57% and 22% of total national income, the bottom 50% share has gone down to 13%.

Furthermore, affluence engenders stability in both professional and personal realms. Financial security affords individuals the freedom to pursue fulfilling careers, invest in meaningful relationships, and weather life’s inevitable challenges with resilience. Within the framework of social capital, affluence serves as a catalyst for cooperation and mutual benefit.

And 50% of the population, or 53.8 crore, earned less than $1,500. The affluent segment will grow at 17% CAGR in next five years, which means an estimated 8.8 crore or 8% Indians over 15 will earn more than $10,000 in 2028, says the UBS report. INDIA IS POISED to become the third-largest consumption market by 2026, says a report by UBS. At present, it is the fifth-largest and one of the fastest-growing economies.

India stands out as a poor and very unequal country, with an affluent elite’. This inequality widens when we compare the wealth possession of the top 10% and the bottom 50% population. Reports find that the top 10% population in India owns 65% and the bottom 10% is just 6% of the nation’s household wealth. I.e., to say that wealth inequality in India between two top 10% and bottom 50% is more than income inequality. The affluent population in India represents a segment of individuals or households endowed with substantial wealth or income compared to the broader populace. This demographic commands notable purchasing power, enabling them to indulge in luxurious lifestyles marked by access to upscale goods, premium services, and opulent amenities.

BT Magazine’s The Point: The Mighty Middle

By nurturing networks, norms, and trust, affluent communities facilitate innovation, investment, and the provision of desirable goods and services. This, in turn, contributes to societal progress and economic vitality. Because the percentage of India’s households in the middle income group doesn’t really change between 2018 and the forecast for 2030.