India’s so-called K-shaped economic growth has a new name – premiumisation. Most consumer companies – auto, FMCG, white goods, etc – are witnessing this trend. FMCG firms are seeing rich and upper middle class customers lapping up premium products. Auto companies are lining up fancy SUVs that cost upwards of Rs 15 lakh but still have long waiting periods. Smartphone makers are launching mobiles pricing Rs 50,000 and above. Even liquor manufacturers are lining up one premium brand after the other.
All these show that one segment of Indian consumers is thriving, splurging, and indulging in luxury life like never before. On the flip side, a majority of Indian consumers are holding on to their purses. The irony is hard to miss, which was aptly described by the head of an FMCG firm recently as the polarity between booming premiumisation and tepidness of mainstream.
The launch of premium products across segments might give a false sense of confidence to corporates as well as policymakers that consumption is back on track. This can’t be further from the truth. In its latest report, consumer intelligence firm Nielsen flagged the decline in consumption in rural markets in the October-December quarter and an even more pronounced fall in urban markets.
Earlier this year, the government released the first advance estimates of GDP growth in FY24 showing consumption growth at 4.4 percent -- the lowest in 20 years. The income disparity in the country has been aggravated by high inflation, especially food inflation. The government’s efforts to promote local manufacturing by levying high taxes on imported goods have also resulted in higher prices for many domestically produced goods. Though most Indians do not pay any income tax, the high incidence of indirect taxes – GST, VAT, excise, etc – affects all sections.
Income disparity has only gotten starker and the same can be gauged by the fact that only 10 percent of working individuals earn more than Rs 25,000 a month. The stagnant growth in minimum wage is further worsening the situation. The Union government’s stipulated minimum wage for unskilled labour is Rs 176 a day, which has not been revised since 2017. This needs correction.
The government needs to go beyond free ration and provide better health and education facilities to make a considerable impact on the living standards of people. Those at the bottom of the pyramid need the government’s support to escape the vicious cycle of deprivation and the society at large must also stop vilifying them as ‘freeloaders’.