As India’s consumption landscape evolves, we must strengthen our economic recovery

Income distribution has evolved over time, with the bottom 60% of India’s population witnessing an increase in their income share from 27% in 2004-05 to 32% in 2015-16, signalling better economic inclusion. However, this progress was disrupted during the pandemic, with their share dropping to 23% in 2020-21 before recovering to 31% in 2022-23. The next 30% of the population experienced relative stability, maintaining an income share between 37% to 39%.

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Meanwhile, the top 10% of the country’s population saw a decline from 36% in 2004-05to 30% in 2015-16, but gained significantly during the pandemic, reaching 39% in 2020-21 before settling at 31% in 2022-23. These trends highlight the pandemic’s role in widening income disparities, though a recent recovery points to improved equity.

Household expenditure patterns have also reflected these financial dynamics. The bottom 60% population consistently have a higher share in expenditure than their income share, emphasizing their importance in a consumption-driven economy.

In 2015-16, for instance, they accounted for 39% of total routine expenditure while earning only 32% of total income. Their spending ability was severely affected during the pandemic, dropping to 30% in 2020-21, but showed a recovery to 36% in 2022-23.

The next 30% population maintained spending levels in line with their income, while the top 10% population consistently spent less, reinforcing their ability to save and invest. However, even the wealthiest households saw an increase in their routine expenditure share during the pandemic, rising from 22% in 2015-16 to 31% in 2020-21 before returning to 27% in 2022-23.

The routine expenditure-to-income ratio provides further insights into financial stress. The bottom 60% population has traditionally spent around 90% of their income, but this proportion exceeded 100% in 2020-21, suggesting reliance on borrowings or asset liquidation. By 2022-23, their spending ratio fell to 0.86, indicating a gradual recovery.

The next 30% population experienced an increase in their spending ratio over the years, peaking at 0.81 in 2020-21 before stabilizing at 0.70 in 2022-23. The top 10% population saw a more controlled rise, reaching 0.64 in 2022-23, which helped them maintain a significant cushion of financial security.

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Several structural shifts have shaped India’s consumption patterns. Rapid urbanization and rising incomes among the middle class have fuelled demand for discretionary spending, such as on entertainment, travel and luxury goods. The digital economy has also played a key role, with e-commerce, fintech and online services becoming integral to consumption habits.

Healthcare and education have emerged as priority spending areas, particularly during and after the pandemic, even as awareness of long-term financial planning went up. Savings and investment behaviours continue to diverge, with wealthier groups accumulating assets while lower-income households remain financially vulnerable.

The role of inflation in influencing consumption cannot be overlooked. Over the years, rising prices of essential goods and services have disproportionately affected lower-income groups, reducing their purchasing power. The need for policy measures to manage inflation and stabilize essential-commodity prices is evident, as affordability remains a key concern for a large section of the population. For middle-income and affluent groups, inflation affects discretionary spending patterns, leading to adjustments in lifestyle-related expenses.

Inflation remains a concern, especially for lower-income households that spend most of their earnings on essentials.

Government interventions, such as subsidies on essential goods and welfare programmes, have played a role in mitigating the impact of income disparities. Expanding these initiatives, alongside financial literacy initiatives, can help vulnerable populations better manage savings and expenditures. Additionally, fostering small businesses and informal-sector growth can create more employment opportunities, thereby improving income distribution across all socioeconomic groups.

Technological advancements have also significantly altered consumption behaviour. The rise of digital payment systems, expansion of online marketplaces and the availability of financial services through fintech platforms have given consumers more spending options.

However, digital accessibility remains uneven, with lower-income households facing barriers such as limited digital literacy and inadequate access to banking services. We must bridge this digital divide to ensure that all segments of the population benefit from emerging economic opportunities.

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While the post-pandemic recovery has been encouraging, challenges remain. Income distribution has improved, but ensuring sustained growth and inclusivity requires policy support. Inflation remains a concern, especially for lower-income households that spend most of their earnings on essentials. The expansion of digital platforms is likely to shape consumption trends, but access to financial tools must be broadened to achieve wider benefits. Stronger social security measures, better credit access and enhanced financial literacy must combine to foster long-term economic stability.

India’s consumption story of the past two decades reveals both progress and persistent inequalities. While economic shocks such as the pandemic have exacerbated vulnerabilities, recent trends suggest a return to stability. Our policy focus now must be on inclusive growth, financial security and leveraging our digital transformation to create a more resilient and equitable economy.

The author is managing director and chief executive officer of People Research on India’s Consumer Economy.