The Indian urban consumer is struggling. Several indicators show that those in urban India are saving money and not spending. That happens when you are struggling with your income or face uncertainty. A survey by Kantar, a global research firm, showed growth in consumer companies by large established companies (HUL, Marico, Godrej, Dabur), which were growing relatively slower than lesser-known companies or brands. The unorganized sector grew even faster. That is a phenomenon called downtrading.
The consumer chooses cheaper products or services than before to manage spending. That activity is an indicator of a wage growth slowdown. That does not bode well for companies that rely on largely urban and rural consumption, as two-thirds of India's gross domestic product is led by it. Urban consumption means rich, middle-income people in urban areas spend money on food, entertainment, travel, and other discretionary expenditures for comfort.
Suppose you are a consumer in rural or urban India. In that case, you decide your consumption on your long-term average income and not on the current income patterns, according to one economic theory. If you are confident of your future income, you steadily increase your spending on consumption items. If the wage growth is likely to be weak, you slow down.
Information is a key to your wealth. The more you learn and understand how the economy works, the better sense you can make of the market and money situation. The quarterly results season ended in May 2025. Besides that, a lot of information was published by the Reserve Bank of India in the monetary policy report about economic growth and inflation outlook. The RBI also wrote extensively about it in the annual report released towards the end of May 2025. The government also puts out information on industrial production and related data.
According to the latest analysis by India Ratings, an affiliate of global credit ratings agency FITCH, wage growth in India will likely remain flat in 2025-26. The wage growth in India's economy was primarily driven by economic growth. There are two significant indicators of a slowdown. One is in the housing sector. Sales of luxury homes moderated after the pent-up demand peaked, according to India Ratings. The IT sector faced technological changes due to the advent of artificial intelligence. That has further hurt employment and salary prospects. The poor wage growth is also a function of companies choosing not to spend money on expansion or new job creation.
There is something not adding up. Two areas drive a sustainable demand in an economy. One is the spending by households, and the second is the investment by the corporate sector. The aggregate household wealth was never as high as it is now. According to the National Stock Exchange data, the holding of individual investors in equity markets is at a record high, adding over half a trillion dollars to household wealth over the past five years.
Benchmark indices are not far away from their historic highs. The urban wealthy consumer class has never had it better than now. Yet, the middle class in cities seems to be struggling. The benefits of personal income tax breaks extended in the Budget 2025 will be available for the middle class this year. However, if the middle class is unsure about their future income, they will continue to cut spending, which could continue to hurt the economy.
Two weeks ago, this column spoke about India's growth story's headwinds. The income crisis for the middle class due to dim job prospects is hurting India's economy. It is time for everyone to think differently. Creating multiple income streams or businesses that solve new problems could be one way out. It is a structural issue and is unlikely to go away soon.