A new report reveals that while India has a population of 1.4 billion, nearly one billion people lack the financial means to spend on discretionary items or services.

The country’s consumer class, which is the key market for businesses and startups, is only about 130-140 million people, equivalent to the population of Mexico, according to Blume Ventures, a venture capital firm.

An additional 300 million Indians are classified as "emerging" or "aspirant" consumers. However, these individuals are hesitant spenders who have only recently started to loosen their purse strings, aided by the rise of digital payments.

The report suggests that India’s consuming class is not expanding as much as it is becoming wealthier, with the rich getting richer, rather than an increase in the number of wealthy individuals. This trend has fueled "premiumisation," where companies focus on high-end products for the wealthy rather than mass-market options. This shift is evident in the growing sales of luxury homes and high-end smartphones, while more affordable alternatives struggle.

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India's post-pandemic recovery is characterized as "K-shaped," with the wealthy prospering while the poorer population sees a decline in purchasing power. A significant structural trend has been the widening income inequality, with the top 10% now holding nearly 58% of national income, compared to 34% in 1990, while the bottom half's share has dropped.

The latest consumption decline is worsened by decreasing purchasing power, a drop in financial savings, and rising debt levels. The central bank's crackdown on unsecured lending has also impacted consumption, especially among the "emerging" class, who relied on such credit.

Short-term spending boosts are expected from higher rural demand and a $12 billion tax rebate in the recent budget, but longer-term challenges remain. The middle class, a key driver of consumption, is being squeezed by stagnant wages and reduced savings. The financial strain on India's middle class is evident, with many facing flat incomes adjusted for inflation.

Moreover, job prospects for white-collar workers are diminishing due to automation and artificial intelligence, which is particularly affecting clerical and administrative roles. As India's economy is heavily consumption-driven, a decline in consumption could have serious macroeconomic consequences, as highlighted in the government’s economic survey.