In recent years, India has witnessed a significant transition from its traditional emphasis on large savings to a noticeable surge in consumer spending. Although consumer spending has increased significantly, it has also influenced the saving habits of Indian households. In recent years, there has been a decrease in the savings rate, which historically ranged between 30-35% of GDP. As to the RBI, the gross savings rate declined to 29.0% of GDP in 2022-23 from 32.1% in 2018-19, and it is expected to decrease further to 28.5% in 2023-24.

This is a result of increasing earnings, urbanization, and changing consumer tastes. It is partially to the impact of inflation too, which diminishes disposable earnings. The transition from saving to spending has both positive and negative consequences: it promotes immediate economic expansion but also gives rise to worries over the long-term financial stability of households. We will explore the causes of shift in consumer expenditure culture, which is influenced by larger economic and cultural changes.

Economic Expansion, Increased Earnings

India`s strong and steady economic growth over the past twenty years has played a major role in the increase of consumer expenditure. The nation`s Gross Domestic Product (GDP) has had a consistent annual growth rate of around 7%, leading to a rise in disposable incomes, notably among the middle class. As per the Reserve Bank of India (RBI), the average per capita net national income (NNI) (in constant terms), increased by about 35 percent from INR 72,805 in 2014-15 to INR 98,374 in 2022-23. This category, which has experienced significant growth, now has a higher level of disposable income and a tendency to spend on luxury items and services.

Urbanization, Evolution Of Lifestyles

Urbanization is a significant catalyst for consumer expenditure in India. As more individuals move to cities in pursuit of improved prospects, metropolitan lifestyles marked by increased levels of consumerism are becoming increasingly prevalent. Based on data from the World Bank, India`s urban population witnessed a growth from 31% in 2010 to 35% in 2020, and it is projected to further rise to 38% by 2024. Urban residents often allocate a larger portion of their budget on housing, transportation, leisure activities, and dining out in comparison to individuals living in rural areas. The transition to urban areas has resulted in a higher need for consumer products and services, thereby elevating total expenditure.

Youthful Population, Consumption Driven By Aspirations.

The demographic composition of India, characterized by a substantial number of young individuals, has a pivotal impact on the formation of consumer purchasing patterns. The younger generation, motivated by ambitions and impacted by worldwide culture, tend to prioritize instant spending above long-term investment. As per the National Statistical Office (NSO), around 65% of India`s population is under the age of 35. The current generation places a high importance on experiences and convenience, resulting in increased spending on travel, technology, and lifestyle items.

Access To Financial Services, Use Of Digital Payment

The growth of financial inclusion and the widespread adoption of digital payment methods have accelerated consumer spending in India. As of 2024, initiatives such as the Pradhan Mantri Jan Dhan Yojana have successfully integrated more than 47 crore individuals into the formal banking system, therefore enabling them to conveniently get credit and financial services. Moreover, the extensive use of digital wallets and online banking has enhanced the convenience of transactions. According to the RBI, the number of digital transactions increased from 3.13 billion in 2018-19 to over 10 billion in 2023-24, motivating customers to spend more often and easily.

Elevated Expenditure Of Credit Cards

The utilization of credit cards in India has experienced substantial growth, making a considerable contribution to the overall rise in consumer expenditure. In 2024, the RBI stated that the total number of credit cards in circulation had surged to over 105 million, marking a significant rise from 58 million in 2018. Consistently during 2023, the monthly expenditure on credit cards exceeded ?1.2 lakh crore, indicating an increasing dependence on credit for both regular and expensive expenditures.

To conclude, the shift in consumer purchasing patterns in India is a notable break from previous trends. Indians are experiencing rising expenditure and decreased savings due to factors such as economic growth, urbanization, a young population, improved financial inclusion, and higher utilization of credit cards. This pattern is indicative of the ever-evolving socio-economic environment of the nation. Nevertheless, it also emphasizes the necessity of maintaining a balance between expenditures and savings to guarantee long-term financial stability.