Consumer goods companies in India are facing the crisis of a ‘missing middle class’. The sector has reported muted revenue growth and, more worryingly, negative or flat volume growth in the second quarter of the financial year. This has been the story for two or three quarters for most companies. Nestlé’s India chief recently pointed out the ‘missing middle class’ syndrome that companies like his are facing.
Earlier this year, Asian Paints’ managing director said that the GDP growth numbers were not getting reflected in paint sector sales. Others have also highlighted the principal pain points—weak wage growth and muted consumption.
The government’s own numbers show that private consumption grew at 4.4 percent in 2023-24. Though private consumption grew at 7.5 percent in the April-June 2024 quarter, it was primarily because of the low base a year ago. The September quarter could again show a slowdown in consumption.
The muted growth in the consumer goods sector has largely been attributed to stubborn food inflation, which touched 9.24 percent in September after remaining below 6 percent for two months. In the last one year, the average food inflation has been 8.11 percent. RBI’s inflation targeting seems to be ineffective in curbing food inflation, and that is a cause for concern. Even sectors such as auto, where price sensitivity is low, have started facing the heat.
Inflation severely affects the purchasing power of the middle class. A recent SBI Research report said that the Indian middle class has shifted from an annual income range of Rs 1.5-5 lakh to Rs 2.5-10 lakh over the last 10 years. However, the average inflation during this period was 5.5 percent, which means a person earning Rs 5 lakh in 2013-14 had to earn Rs 8.6 lakh in 2023-24 to maintain the same lifestyle.
Multiple factors hit wage growth over the past decade—an economic slowdown from 2016-17 to 2019-20 and the Covid pandemic from 2020-21 to 2021-22. High inflation and erratic wage growth resulted in household savings plummeting to 18.4 percent of GDP in 2022-23, the lowest in the last five years. India’s middle class is in distress—and no amount of sugar-coating facts and figures can hide the reality anymore.