Is India’s Middle Class Shrinking? Understanding the Growing Economic Strain on FMCG Consumption
Highlights:
- Diwali sales slump hints at shrinking middle-class purchasing power.
- Rising inflation, unemployment, and taxes strain household budgets.
- Declining household savings hit a 47-year low, highlighting economic struggles.
The State of India’s Middle Class
India’s Middle-class spending trends have traditionally driven economic growth, especially in sectors like fast-moving consumer goods (FMCG). However, a shift is becoming evident as economic pressures from inflation, unemployment, and rising taxes impact spending habits. Recent data reveals a marked decline in demand for everyday essentials such as soap, oil, and biscuits—typically considered staples for the average Indian family. The festival of Diwali, which usually fuels massive retail sales, saw muted celebrations this year, with reduced spending across various segments.
FMCG Slowdown and the Polarization of Market Demand
Companies like Nestlé, known for serving the Indian middle class, are witnessing reduced sales of FMCG goods. Nestlé’s recent quarterly growth has been the slowest in eight years. Nestlé’s Chairman, Suresh Narayanan, observed that the market has become polarized: premium goods continue to perform well, while the middle tier, which traditionally targets the middle class, has shrunk significantly.
Decline in Consumer Demand Across Sectors
- Jewelry: Dhanteras, a day associated with significant gold purchases, reported a 17% drop in sales compared to last year. Consumers are opting for silver over gold due to affordability.
- Automotive: With over 700,000 vehicles remaining unsold in showrooms, the auto sector also feels the pinch. Rising on-road costs, even for two-wheelers, have deterred middle-class buyers.
- Real Estate and Education Loans: More middle-class families are now dependent on loans to afford property, education, and even high-end consumer goods.
Savings at Record Lows: Where Has the Money Gone?
India’s household savings hit a 47-year low in 2022–23. Savings, once a defining trait of the Indian middle class, have dwindled due to financial strain from rising living costs. Reports indicate that only 2.8 crore individuals paid income tax, even as the number of tax filers grew. Inflationary pressures have constrained disposable income, reducing the capacity for families to save.
Rise of the K-Shaped Economy
India’s economic growth appears to be increasingly K-shaped, meaning that while some sectors flourish, others decline. Premium products and luxury goods are expanding while affordable everyday goods struggle. This disparity is widening, with government policies seemingly favoring the upper class. For instance, GST on luxury goods has remained lower than everyday essentials, impacting middle-class affordability.
The Future of India’s Middle Class: What Lies Ahead?
Economic analysts warn that India’s middle class, once the backbone of economic stability, may continue to shrink unless addressed through policies that support sustainable growth. The government’s focus on upper-class markets and premium products may benefit high-income groups but risks leaving the middle class further.
Conclusion: An Urgent Call for Policy Reforms
As household savings dwindle and inflation remains high, India’s middle class faces an uncertain future. Bridging this growing economic divide will require comprehensive strategies to balance growth across all income segments, not just the top tier. Ensuring affordability in essential goods and services while fostering job creation could empower India’s middle class to regain its pivotal economy.
