Going beyond trickle-down: Rethinking value for 200 million consumers

The top 35-50 million urban consumers in India’s top 100 cities by income, consumption, and savings have received enough attention from marketers. Their ability to consume, even during times of economic stress, has been well documented — recall the post-Covid K-shaped recovery across sectors.

 

The stress in the country’s larger consumption market, from daily essentials to discretionary purchases, and the concomitant reluctance of the private sector to invest in new capacity creation have been the economic policy bugbears for some time now. It is clear to big and small sellers of anything from soaps, shampoos, two-wheelers, washing machines, apparel and cars that they must start focusing on the cohort of the next 200 million consumers, who sit right under the segment of affluent/high-income 35-50 million ones. Now a new study “The Many Urban Indias” jointly brought out by research firm People Research on India’s Consumer Economy (PRICE) and Tata Sons, the holding firm of the eponymous salt-to-software conglomerate, lays down the contours of this huge consumer market.

 

 Most media attention is focused on the study’s four urban groupings, essentially a classification of top 100 cities and towns based on population — Big Six (six metros with population over 10 million), Boomtowns (19 with population between 2.5 million and 10 million), Breakout Cities (25 with population between 1.5 million and 2.5 million) and Frontier Cities (the remaining 50 with population between 0.5 million and 1.5 million). What’s somewhat getting missed in this reporting is the study’s classification of households based on income criteria, and its emphasis on the importance of what it calls middle-income households across India’s top 100 cities and towns. These top 100 cities account for 19 per cent of India’s population, 35 per cent of income, 31 per cent of spending, almost half (47 per cent) of households’ surplus income, and almost two-thirds of all urban demand.

 

 The share of middle-income households (with incomes between ₹6 lakh and ₹36 lakh per annum at 2025-26 prices) has doubled over the past decade to account for over half (53 per cent) of all 62 million households across India’s top 100 cities by 2025-26. That number is expected to rise to over 60 per cent of the 80 million-odd households over the next five years (2030-31). According to the study, the middle-income group it has identified “… broadly corresponds to about PPP $15-90 per person per day, aligning with internationally used middle-income cohort definitions such as the Brookings Institution’s PPP $11–110 range, and the Pew Research Centre’s PPP $10-20 range, while reflecting India’s specific income and consumption realities”.

 

 At an average family size of 4.6, this translates into a cohort of around 200 million consumers. Other income cohorts, according to the study, are low income (annual household income below ₹1.5 lakh per annum), lower middle-income (between ₹1.5 and ₹6 lakh) and high income (above ₹36 lakh). 

 

 The middle-income households will be spread evenly across population clusters, making up 63 per cent of households in the Big Six by 2031, 59 per cent in Boomtowns, 57 per cent in Breakout Cities and 56 per cent in Frontier Cities. The PRICE-Tata Sons study notes that, “This rise marks a structural break in India’s urban income distribution… the single largest socio-economic mobility shift in the country’s urban history.” The share of high-income households will rise to 19.6 per cent, while that of low-income households will fall to 0.4 per cent and that of low middle-income to around 20 per cent.

 

 Note that the study does not define middle-income household simply as the middle of the income distribution, but takes a wider, more nuanced view to include households “…that enjoy a reasonable degree of economic security, with a relatively low risk of falling back into poverty and sufficient resources for discretionary spending, savings, education, health care, and asset creation”. In short, these households are almost ready for the next level of consumption as many approach crucial income thresholds.

 

 The study notes that households earning annually between ₹12 lakh and ₹14 lakh are potential car buyers, and washing machines are typically bought once the household income crosses ₹14 lakh. Even after accounting for the 50-57 per cent share of asset ownership among middle-income households for television, air conditioners, cars and refrigerators, penetration remains relatively low in the middle-income households and deepening it can widen the market substantially.

 

 To be sure, marketers are not new to these aspirational 200 million consumers, just that they have not really curated this huge segment and have instead just depended on the trickle-down consumption emanating from models developed for the rich/high-income cohort. What is needed is an appropriate value proposition for these households, something akin to what Tata Zudio did with apparel retailing or a player like CityMall with grocery delivery across India’s Boomtowns, Breakout and Frontier cities.