Reports of middle class’s decline are greatly exaggerated

Rajesh Shukla    January 20, 2025

OPINION I Times of India

 

The idea that muted demand for fast-moving consumer goods (FMCG), among other things, signals a contraction in India’s middle class is misleading and fails to capture the broader dynamics of this vital economic segment. Rather, slowing FMCG growth reflects changing middle-class consumption patterns driven by inflation, technological advancements and shifting priorities.

Inflationary pressures have led many households to reallocate spending, prioritising essentials like food and fuel. Yet, this redirection of disposable income also highlights an increasing focus on long-term investments, such as healthcare, education and housing – clear indicators of upward mobility and financial security. 

Meanwhile, the middle class – defined as households with annual disposable incomes ranging from ?5 lakh to ?30 lakh (at 2020-21 prices) – continues expanding. Research from PRICE’s ICE 360 surveys shows that this group accounted for 40% of India’s population in 2025, up from 26% in 2016. 

Changing habits reshape markets

The evolving spending habits of the middle class are reshaping markets. Discretionary spending has surged in high-value categories, such as smartphones, automobiles and real estate. For example, compact SUVs and mid-range smartphones have seen exponential growth, signifying the aspirations and increased purchasing power of this demographic. Access to affordable consumer credit has further enabled families to make significant investments in homes and vehicles, with auto loans and home mortgages seeing consistent year-on-year growth.

Moreover, the rise of e-commerce and digital platforms has transformed consumption. Companies like Flipkart, Amazon and Myntra have expanded their operations to target tier-2 and tier-3 cities, as well as developed rural areas, where middle-class households are becoming pivotal drivers of growth. These areas are becoming economic hubs, offering a decentralised growth model that reduces dependency on metropolitan markets. PRICE data further reveals that middle-class spending on online services has increased by over 55% since the onset of Covid, underscoring a significant shift towards digital consumption.

Other signs of resilience

Despite temporary disruptions, the resilience of India’s middle class is evident in several economic indicators:

Luxury and aspirational goods: Middle-class households are driving demand for premium products, such as high-end smartphones, fitness gadgets and international travel packages, highlighting increased disposable income. The PRICE report highlights that, while the middle class constitutes about 40% of population, it accounts for over 62% of the ownership of premium brands in high-end consumer durable goods like cars, air conditioners, refrigerators, smart TVs, smartphones and laptops. 

Housing boom: Affordable and mid-range housing demand continues to grow, supported by government schemes like Pradhan Mantri Awas Yojana (PMAY). Data from real estate platforms shows that over 48% of new buyers in 2023 belonged to middle-class households.

Consumer credit growth: The availability of low-interest loans has fuelled purchases of homes and vehicles, with the middle class contributing to over 70% of retail credit growth in the last decade.

Main consumption driver: As India’s economy rebounds from pandemic disruptions, the middle class is poised to play an even greater role. According to a study by PRICE, this segment accounted for over 57% of the incremental income and consumption between 2021 and 2025, solidifying its position as the driving force behind the country’s economic growth.

Time to look beyond big cities

The middle class’s spending patterns show it is prioritising long-term stability and growth. This group is projected to remain a dominant force in driving incremental income and consumption, cementing its position as the backbone of India’s economic progress.

In tier-2 and tier-3 cities, localised marketing offers significant opportunities for businesses. By understanding regional consumption patterns and tailoring products to meet specific needs, companies can build loyalty among middle-class consumers in these emerging markets.

Govt must check inflation

For policymakers, supporting the middle class is essential to sustaining economic growth. Key measures include addressing inflation through fiscal interventions, expanding affordable housing programmes and enhancing healthcare and education infrastructure. Additionally, promoting digital literacy and ensuring access to high-speed internet are vital for unlocking the economic potential of rural and semi-urban areas, where middle-class growth is accelerating.

Businesses must also adapt to the changing preferences of this segment. Value-driven products that balance affordability with quality will resonate with families sensitive to inflation, while premium offerings in health-focused FMCG items, eco-friendly products and digital services can appeal to the aspirations of upwardly mobile households. As e-commerce increasingly dominates the consumption landscape, companies must prioritise robust digital engagement strategies to capture this market.

By aligning strategies with the aspirations of this resilient and evolving segment, policymakers and businesses can unlock immense potential. The middle class is not just a key driver of economic stability and growth – it is a transformative force shaping the future of India’s economy.

 

 

Tags: middle class