Rising inequality, shifting consumption patterns, and a shrinking mass market are reshaping how Indian businesses must compete
By Surya Pillai
Introduction: The End of a Single Middle-Class Story
For over three decades, India’s economic growth story rested on a powerful and reassuring idea: the steady rise of a vast, aspirational middle class. This group was expected to climb the income ladder together—earning a little more each year, spending a little more annually, and collectively powering growth across sectors such as FMCG, automobiles, housing, education, and financial services.
By 2026, this narrative is increasingly difficult to sustain.
India’s middle class is no longer behaving like a unified bloc. Instead, it is quietly but decisively splitting, creating a structural shift in consumption patterns. Businesses that continue to rely on outdated assumptions of a homogenous “mass middle” risk strategic misalignment—and eventual irrelevance.
The Size of India’s Middle Class: Big Numbers, Uneven Reality
Estimates suggest that India’s middle-income population today stands between 300 and 400 million people, making it one of the largest middle classes in the world. According to World Bank-aligned definitions, this group broadly includes households earning between ₹5 lakh and ₹30 lakh annually.
However, headline numbers mask widening internal disparities.
Wage growth for most salaried white-collar and service workers has lagged inflation, especially in urban India.
Between 2019 and 2025, housing costs in major cities rose by 30–50%, while private healthcare and education costs rose even faster.
In contrast, a smaller but influential segment has seen accelerated income growth, driven by technology, finance, entrepreneurship, and capital markets.
The result is not a shrinking middle class—but a fragmenting one.
A Barbell Economy Takes Shape
India is increasingly resembling a barbell-shaped economy:
Upper-middle and affluent consumers with rising discretionary spending
Lower-middle households under financial stress and price sensitivity
A thinning centre, which once formed the backbone of mass consumption
This structural split has profound implications for demand, pricing power, and brand strategy.
How Consumption Patterns Are Shifting
Premium Is Growing—Even When Volumes Are Not
Consumer data already reflects this divergence:
Premium smartphone sales in India are growing at double-digit rates, even as overall smartphone volumes have stagnated.
Luxury car sales have risen steadily, with brands reporting strong growth from Tier 2 and Tier 3 cities, indicating that affluence is spreading geographically—but unevenly.
Categories such as premium beauty, wellness, fitness subscriptions, curated travel, and fine dining continue to expand.
This growth is being driven by a relatively small but confident upper-middle segment, not by mass-market demand.
Value and Down-Trading Dominate the Other End
At the same time:
Value-focused FMCG brands, private labels, and discount retailers are gaining market share.
Consumers are buying smaller pack sizes, delaying purchases, or switching brands frequently.
Growth in used electronics, budget airlines, and no-frills services highlights rising financial caution.
What is eroding is the dependable mid-priced consumption layer—once the engine of predictable volume growth.
The New Upper-Middle-Class Consumer in India
On the higher end of the split is a consumer who increasingly resembles global peers:
Digitally fluent and mobile-first
Often part of dual-income households
Urban or semi-urban, with exposure to global brands and experiences
Less price-sensitive, more value-conscious
This segment prioritises quality, trust, convenience, and experience over discounts.
Brands Winning This Segment
Nykaa has seen faster growth in premium beauty compared to mass offerings, driven by curation and trust rather than price wars.
Tata CLiQ Luxury has proven that Indian luxury consumption is no longer experimental—it is structural and repeat-driven.
However, this consumer is also unforgiving. Inconsistent service, superficial “premiumisation,” or diluted brand promises are quickly penalised.
The Squeezed Lower-Middle-Class Consumer
At the other end lies a consumer under sustained pressure:
Discretionary spending is limited
Brand loyalty is weak
Value-for-money and predictability dominate decision-making
This mindset has benefited:
Budget airlines and shared mobility
Used smartphones and refurbished electronics
Smaller SKUs and essential-first retail formats
DMart is a powerful case study. Its appeal lies not in aspiration, but in certainty—low prices, operational discipline, and consistent value. In an age of economic anxiety, reliability has become a competitive advantage.
The Strategic Risk: The Disappearing Middle
The greatest danger lies for businesses stuck in between.
Brands that are neither convincingly premium nor aggressively value-driven are being squeezed from both ends:
Mid-range apparel brands are losing customers to fast fashion on one side and premium labels on the other.
In food and hospitality, consumers are choosing either quick-service restaurants or high-end experiences, bypassing mid-priced options.
In services, “good enough” is no longer good enough.
How Businesses Are Responding
Some sectors are adapting by explicitly bifurcating strategies:
Automobile manufacturers clearly separate entry-level models from premium sub-brands.
Banks and fintechs aggressively segment customers—offering wealth management and exclusive benefits to high-net-worth clients, while steering others toward low-cost, digital-first accounts.
Retailers are splitting assortments, formats, and messaging based on income clusters.
These strategies can work—but only when positioning is sharp and execution is disciplined. Half-measures and cosmetic segmentation rarely succeed.
What Businesses Must Do Next
India’s middle class is no longer a single staircase to prosperity—it is a forked road.
To remain relevant, businesses must:
Choose their target segment clearly
Align products, pricing, distribution, and communication accordingly
Invest in data-driven segmentation and localised insights
Treat operational discipline as a strategic capability, not a cost function
Macro drivers such as job quality, productivity growth, and inequality may lie beyond corporate control. Ignoring their impact, however, is a choice—and an expensive one.
Conclusion: Adapting to India’s Divided Middle
The Indian consumer has not disappeared—but the consumer businesses once built around may no longer exist in the same form.
Companies that recognize and adapt to the divided reality of India’s middle class will continue to grow, even amid uncertainty. Those that cling to outdated assumptions of a uniform, steadily rising middle risk discovering—too late—that the market they depended on has quietly moved on.