MUMBAI: There is a "significant bifurcation" in India's consumption story and the K-shaped trend is likely to continue in the near future, a Swiss brokerage said on Tuesday.
"India's consumption story reflects a significant divide, driven by a resilient economy but stark contrasts in spending patterns," Tanvi Gupta Jain, economist at UBS Indy, said in a note.
He said, "...the gap between the affluent and broad-based domestic demand has widened due to factors such as income inequality, increased consumer credit access and declining household savings."
The brokerage estimates domestic consumption growth to remain "slow" at 4-5 per cent in FY2025, which is lower than the trend seen in previous years.
It may be noted that post-pandemic, concerns have been raised about K-shaped growth representative of deepening inequalities in the country.Some economists have gone public with their disapproval and have even called the pandemic 'flattening' inequalities.
India's domestic consumption is projected to nearly double over the last decade to US$2.1 trillion by 2023, with a compound annual growth rate of 7.0 percent, the UBS report said.
Although domestic consumption growth has been slow in the last two years, I said, it is the affluent class that has seen a significant increase in demand.
The brokerage said the recovery in consumption growth is "uneven", and pointed out that sales of premium cars, residential units above Rs 1 crore, smartphones priced above US$300 or Rs 25,000 have grown rapidly, while Entry-level and mass market items have seen slow growth post-pandemic.
It attributed the divide in consumption to factors such as income continuity enjoyed by those at the top of the pyramid, limited fiscal support for weaker sections and low household savings due to weak incomes.The 'K-shaped' consumption pattern continues even after the pandemic, it said, adding that the urban economy is performing better than the recovery in the rural economy after the pandemic.
However, despite the divide, India is on track to become the world's third largest consumer market by 2026.
"India's consumption story reflects a significant divide, driven by a resilient economy but stark contrasts in spending patterns," Tanvi Gupta Jain, economist at UBS Indy, said in a note.
He said, "...the gap between the affluent and broad-based domestic demand has widened due to factors such as income inequality, increased consumer credit access and declining household savings."
The brokerage estimates domestic consumption growth to remain "slow" at 4-5 per cent in FY2025, which is lower than the trend seen in previous years.
It may be noted that post-pandemic, concerns have been raised about K-shaped growth representative of deepening inequalities in the country.Some economists have gone public with their disapproval and have even called the pandemic 'flattening' inequalities.
India's domestic consumption is projected to nearly double over the last decade to US$2.1 trillion by 2023, with a compound annual growth rate of 7.0 percent, the UBS report said.
Although domestic consumption growth has been slow in the last two years, I said, it is the affluent class that has seen a significant increase in demand.
The brokerage said the recovery in consumption growth is "uneven", and pointed out that sales of premium cars, residential units above Rs 1 crore, smartphones priced above US$300 or Rs 25,000 have grown rapidly, while Entry-level and mass market items have seen slow growth post-pandemic.
It attributed the divide in consumption to factors such as income continuity enjoyed by those at the top of the pyramid, limited fiscal support for weaker sections and low household savings due to weak incomes.The 'K-shaped' consumption pattern continues even after the pandemic, it said, adding that the urban economy is performing better than the recovery in the rural economy after the pandemic.
However, despite the divide, India is on track to become the world's third largest consumer market by 2026.
