The rising prices of essential goods and services have eroded the purchasing power of lower and middle income groups in India. Many of them have reduced their consumption of personal care and packaged food products, such as tea, shampoo, detergent and groundnut oil. Their output fell between April to August 2023, compared to the year before, according to Bank of Baroda economics research.
Affluent consumers splurge on discretionary items
On the other hand, the upper and upper middle class segments have seen their household incomes go up more than inflation. They have increased their spending on discretionary items, such as wine, cheese, caviar, refrigerators and mobiles. These categories have seen high growth in online festive sales, which reached ₹47,000 crore in the first week, 19% higher than last year.
A schizophrenic pattern of consumption
The divergent trends in consumption reflect a schizophrenic pattern of demand in India. While one segment of the population is struggling to afford basic necessities, another segment is enjoying a lifestyle of luxury and indulgence. This creates a dichotomy in the market, where sales are doing better in categories where price does not matter, as Madan Sabnavis, the chief economist of Bank of Baroda, puts it.
A challenge for policy makers and businesses
The widening gap between the two Indias poses a challenge for policy makers and businesses. How to balance the needs of the poor and the aspirations of the rich? How to stimulate demand across the board and ensure inclusive growth? How to cope with the volatility and uncertainty in consumer behavior? These are some of the questions that need to be addressed in the post-pandemic era.