Chennai: Expansion of private spending would lead to greater share of discretionary spending in India's consumption basket. Our estimates suggest that aggregate discretionary consumption could almost triple from $657 billion in 2022 to as much as $2,000 billion by 2030.
India's private consumption expenditure has historically been the dominant driver of economic growth, generating an outsized 58 per cent share of GDP in 2022. This share has gradually decreased since the 1950s, when it was 84 per cent. However, India's private consumption is equivalent to only about 29 per cent of that of China and a mere 12 per cent of the US.
At 1.4bn, India is now the world's most populous country with a young and expanding population. By 2030, India's population pyramid will show a bulge in the 25-45 age group — the key consuming demographic — which has historically coincided with consumption booms in other economies.
Expanding aggregate private spending would see a greater share of discretionary spending in India's consumption basket. Barclays’ estimates suggest that aggregate discretionary consumption could almost triple from $657 billion in 2022 to as much as $2,000 billion by 2030.
However, growing consumption, particularly discretionary spending, creates vulnerability for India's macro stability through escalating import demand. Consumer imports have been trending higher, in line with rising discretionary consumption.
Increased consumption without compromising macro stability can occur in two ways, which also are congruous with the pre-conditions that will foster a 'step-up' in India's GDP growth rate.
Higher exports can net-off growth in imports. We estimate that if exports increase by 12 per cent per annum, then imports can increase by 11.2 per cent per annum without challenging India's macro stability. We estimate that every 1 basis point drop in the marginal propensity to consume, in FY35, could reduce consumption by $12 billion, while at the same time increasing the savings pool by the same magnitude.
