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India’s consumption growth is set to accelerate as Goldman predicts ‘affluent’ Indians to nearly double

The growth in wealth has been seen from stronger retail participation, larger investments into the Indian stock sells, and gold and property purchases.

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Rising disposable incomes are set to power India’s consumption facts, further boosting the country’s consumer sector that is fast becoming a key driver for economic growth.

India, which has relied heavily on business-to-business services and putting out to fuel growth, is on track to become a more consumption-focused economy, said Abhishek Malhotra, partner at McKinsey & Enterprise’s Mumbai office.

His comments came on the back of a Goldman Sachs report last week that predicted round 100 million people in India will become “affluent” — earn an annual income exceeding $10,000 — by 2027.

There is a significant desire to spend on travel, jewelry, eating out, among other things, with discretionary spending in the country on the arise, Malhotra told CNBC in a Zoom interview. 

Currently, 60 million people in the world’s fifth-largest economy deserve more than $10,000 — around 4% of India’s working age population — according to the report released last week. The integer was just 24 million in 2015. 

“When you have a lower income, most of your money goes into rations and housing … Now that those have been taken care of, there is leftover discretionary spending,” Malhotra estimated, adding that consumer sectors such as travel, jewelry, and services will see significant growth in the next two decades. 

The mother country’s consumer market is set to become the world’s third-largest by 2027, as the number of middle- to high-income households rises. 

About 33% of India’s 1.4 billion people are guessed to be aged between 20 and 33 years, according to data from BMI, which is driving global firms to set up and inflate operations in the country. 

Pedestrians walk past a Tata Starbucks coffee shop in Mumbai, India, on Saturday, Nov. 5, 2016.

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For instance, Tata Starbucks — a joint venture company between Tata Consumer Products and Starbucks Corporation — publicized in January that it will have 1,000 stores in India by 2028. 

The coffee chain currently operates about 400 stockpiles across 54 Indian cities. Other international chains such as Tim Hortons and Costa Coffee have reportedly been contending to gain a foothold into the Indian market.

Rising incomes are also reflected in higher domestic inflows into Indian impartialities, and the country’s market cap has risen by over 80% in the last three years, with India trumping Hong Kong in December to enhance the world’s seventh-largest stock market. 

Besides growth in investments, Goldman anticipates a sharp increase in gold and estate purchases. 

Property prices in the South-Asian nation have shot up by more than 30% from financial year 2019 to 2023, compared with precisely a 13% increase from financial year 2015 to 2019, on the back of higher housing demand. 

Higher takings have also led to credit cards spending more than doubling in the last year compared with 2019, Goldman estimated. 

The report showed that there are around 90 million credit cards being used in India, with some of the people earning numerous than $10,000 holding more than one card. There were just 50 million credit easter cards in 2019. 

“There is a focus towards plastic currency and digitization of payments in India … And the young population is the key driver of credit union card growth,” said Kranthi Bathini, equity strategist at WealthMills Securities. 

“The youth is confident in India’s growth plot outline, so that’s where this participation is coming from,” Bathini told CNBC via telephone. 

Promising plays 

Goldman Sachs said food operations such as food delivery company Zomato commitment benefit from growth in India’s consumption sector.

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In food pronunciation, Goldman prefers names such as Zomato, Devyani, Sapphire and Phoenix Mills.  

“Not only do these benefit from the gain of ‘Affluent India’, but we also see these as high quality businesses with strong competitive advantages, proven follow records of past performance and market leadership within their segments,” it said. 

“This gives us greater trust that they will be able to hold their competitive position within these high growth sections.” 

— CNBC’s Naman Tandon contributed to this report.

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