A Goldman Sachs report released on Friday – ‘The Rise of Affluent India‘ – defines affluence as income of over $10,000 per annum, Rs 8.3 lakh in current exchange rates.Goldman analysts say this class numbers 60 million currently but will grow by a huge 67% to 100 million by 2027.
Currently just around 4% of the working population earns over $10,000 annually (a figure almost five times the per capita income of $2,100, around Rs 1,75,000), the report says. This class has expanded fast – 12% compounded annual growth between 2019 and 2023, compared with 1% increase in population in the same period.
The faster growth in affluence has also meant a significant increase in financial and physical assets, including equities, gold and property, during the last three years. “The increase has been the largest for equities and gold, while property prices have seen a higher rate of appreciation in the last three-four years,” it said.
Goldman analysts point to a 2.8 times jump in demat accounts to 114 million in 2023, and the rise in stock ownership (BSE 200 stocks) and mutual fund investment. Value of gold held by Indians soared 63% to $1.8 trillion between 2019 and 2023.
Other results: A sharper increase in demand for premium products across industries including FMCG, footwear, fashion, passenger vehicles and two-wheelers, better performance by companies focused on top income consumption. Sectors hitting the jackpot are jewellery, travel, premium retail and pricey healthcare.
Even company product portfolios are feeling the change. So, not only has Nestle grown faster than Hindustan Unilever, HUL’s premium portfolio has grown faster than its overall revenue. Using credit card spend as a proxy for consumption by affluents, the report notes credit card ownership has increased 80% since FY19 and credit card spend has jumped 250% in the same period (the calculation is based on trailing 12-month average).
Crucially, Goldman analysts argue this top-end consumption boom is here to stay. Leisure, out-of-home food, jewellery, institutional medical services and durables are sectors that will gain most as affluence grows. They also dismiss Covid as a factor. “The initial hypothesis was that the divergence in consumption for companies that address top-end consumption compared to those that address broad-based consumption was due to the impact of Covid restrictions. Covid restrictions had a greater impact on low-income jobs like those in the service industries, such as, hotels and restaurants. However, Covid restrictions were fully lifted in early 2022, and yet the divergence in growth rates has continued till the end of 2023. We are now 24 months post the lifting of all restrictions, and most services shut down during Covid have fully opened up. The divergence was not just caused by Covid restrictions, but by fundamentally faster growth of ‘Affluent India’…”
The report identified changes in government’s tax policy, a correction in stock and gold prices and competition for established companies from new entrants as potential risks.