India To Become 3rd Largest Consumer Economy By 2025, Says BCG Report

Monica Behura Mar 23, 2017

India's consumption growth is set to treble to $4 trillion by 2025 as rising affluence levels drive changes in consumer behaviours and spending patterns that have big implications for companies, says a Boston Consulting Group (BCG) report.

According to the report, a nominal year-on-year expenditure growth of 12 per cent in the country is more than double the anticipated global rate of 5 per cent and will make the country the third-largest consumer market by 2025 at $4 trillion.

The shape of this growth will be influenced by the elite and affluent income segments will constitute 40 per cent of all spending by 2025 and for the first time, the wealthy will represent the largest consumption segment, it said.

Emerging cities (those with populations of less than 1 million) will be the fastest growing and will constitute one-third of total consumer spending by 2025. It further said that three-fourths of all households will be nuclear families and digital channels will influence 30 per cent to 35 per cent of all retail sales by 2025 and 8 per cent to 10 per cent of retail spending will be online.

The country is already the third largest economy in terms of purchasing power.

"The consumer market is poised for fundamental changes," says Nimisha Jain, a BCG partner and the coauthor of the report.

"As consumer market continues to grow and evolve, companies will need to shed conventional wisdom, try multiple business models simultaneously, and be prepared for rapid changes internally to adapt to changing consumer needs and behaviours," she adds.

Among the factors that will shape consumption is also the countrys unique pattern of urbanisation, in which emerging cities are the fastest growing. Emerging cities with populations of less than 1 million will be the fastest growing and will constitute one-third of total consumer spending by 2025, it said.

Another important trend is shifting family structures. The extended Indian joint family has given way to nuclear households, (a couple or a single person with or without children). The proportion of nuclear households, which has been on the rise during the past two decades, has reached 70 per cent and is projected to increase to 74 per cent by 2025. This ongoing shift is significant to marketers because nuclear families spend 20 per cent to 30 per cent more per capita than joint families.

BCG surveyed 10,000 consumers in 30 locations nationwide and studied consumption in over 50 categories.

In addition, the internet is an increasingly pervasive factor in India’s commerce, and its influence will only expand. Online spending is taking off: in the past three years, the number of online buyers has increased sevenfold to 80 million to 90 million.

Digital’s influence on broader consumer spending is significant and growing rapidly. Digitally influenced spending is currently about $45 billion to $50 billion a year, and that figure is projected to increase more than tenfold to $500 billion to $550 billion—and to account for 30 per cent to 35 per cent of all retail sales—by 2025. As a result, omni-channel interaction is more and more important, but its significance varies by category. Consumers’ purchase pathways also are increasingly complicated.

“Already, a rising number of consumers in all segments are using the internet as their first port of call in framing and driving their purchase decisions,” said Kanika Sanghi, a BCG principal and another co-author of the report.

“Our research found that about 70 per cent of those who have access to the internet go online to make informed purchase decisions. As consumers get more comfortable with digital capabilities, their usage patterns exhibit growth that belies age and other demographic variables,” added Singhi.