Updated March 6th, 2024 at 15:04 IST

Working age population, higher per capita incomes to drive shift in consumption pattern: CRISIL

According to CRISIL, microeconomic theory, as reflected in Engel's law, suggests that as incomes rise, the share of essential items like food in the consumption

Reported by: Business Desk
Retail market boom | Image:Unsplash
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Shift in consumption pattern: The increasing working-age population and higher per capita incomes are expected to drive a shift in consumption patterns, with a greater emphasis on discretionary spending, global rating agency CRISIL said on Wednesday. According to CRISIL, microeconomic theory, as reflected in Engel's law, suggests that as incomes rise, the share of essential items like food in the consumption basket decreases, while the share of discretionary items, such as consumer durables and automobiles, increases.

Private consumption, constituting approximately 57 per cent of India's GDP, has been a stabilising force during global economic slowdowns, such as the aftermath of the 2008 financial crisis and the Russia-Ukraine conflict. 
“The country's large population naturally positions it as a substantial market, and demographically, India boasts the largest young population among major global economies, set to add around 70 million individuals to the workforce (15-64 age group) between 2023 and 2030,” the CRISIL said. 

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Empirical research supports the idea that economies entering the middle-income level experience a significant boost in consumption. According to a UNCTAD discussion paper by J. Mayer, expenditure on durable consumer goods grows faster than per capita income in the income range of $4,000-35,000. With India's projected ascent to the upper middle-income level by fiscal 2031, there is anticipation of an improvement in the quality of consumption, accompanied by a surge in demand for discretionary goods.

Taking the example of automobiles, a key category of aspirational durables, it is observed that car density in a country rises with per capita income, particularly in the middle-income segment. India, appearing to be at the initial stage of this trend, is poised for a notable increase in demand for automobiles and other discretionary goods as income levels rise throughout this decade, the CRISIL said. 

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Published March 6th, 2024 at 13:51 IST