India has one of the world’s largest economies and consumer markets, yet a vast portion of its people have very limited disposable income. The Indus Valley Annual Report 2025 provides insight into this paradox. It shows that while India’s GDP is driven by consumption and services, most Indians don’t earn enough to participate in the consumer economy in a significant way. Below is a breakdown of why a large number of Indians have low spending power and how this impacts the country’s economic landscape.
Overview of India’s Economic Structure
India’s economy is heavily consumption-driven and led by the services sector. Private consumption makes up about 55–60% of India’s GDP, which means over half of economic activity comes from people buying goods and services. By comparison, investment (such as businesses building factories or buying equipment) is around one-third of GDP, and government spending is under 10%
On the production side, services contribute the majority of India’s output – about 54% of GDP – whereas industry accounts for roughly 31%, and agriculture about 15%
This is unusual for a country with India’s low per capita income (around $2,300); typically, poorer economies have larger shares of agriculture or manufacturing. India’s services dominance – from IT and finance to trade and real estate – reflects its modern sectors’ growth, even as millions still depend on farming. In short, consumer spending and services are the twin pillars of India’s economy, driving growth more than manufacturing or exports.
The Reality of Low Spending Power
Despite the large role of consumption in the economy, average Indians have very little spending power. India’s overall consumption is big due to its 1.4 billion population, but on a per-person basis it is modest. In fact, India is the 5th largest consumption market globally, yet “on a per capita basis, India’s consumption metrics look less impressive”
The reason is that incomes for the majority are extremely low. According to the report’s data, roughly 790 million Indians earn under $3,300 a year, while only about 65 million people earn above $12,000
This means the vast bulk of Indians have just a few thousand dollars (or a few lakh rupees) per year to live on. After paying for food, housing, and necessities, most households have little to no disposable income left.
A huge segment of the population – often termed “India3” in the report – is essentially too poor to buy non-essential goods. This bottom tier, about 1 billion people with around $1,000 per person income, “doesn’t have the kind of incomes to be able to spend anything on discretionary goods”
Even the middle segment (“India2”), roughly 300 million aspirational Indians with about $3,000 per year each, are “heavy consumers and reluctant payers” – they spend on basics and small treats, but are very price-sensitive
For example, consider access to financial products: only on the order of 35–40 million Indians have a credit card, and just ~22–28 million use them actively (in a country of 1.4 billion)
Such figures highlight how a relatively small share of the population drives most consumption of goods like electronics, vehicles, or banking services, while hundreds of millions barely participate. In rural areas, spending is even more limited – for instance, rural per-capita FMCG (daily consumer goods) spending is about one-third of urban levels
This reality of low spending power stems from low incomes: most Indians simply do not earn enough to spend beyond the basics, which keeps per-capita consumption low even though aggregate consumption is high.
India’s Economic Divide – India1 vs the Rest
India’s economy thus has a sharp divide: a relatively small wealthy class propels consumption and growth, while the majority struggle with minimal purchasing power. The report illustrates this by dividing the population into three groups – India1 (the top ~10% rich), India2 (the next ~20–30% aspiring middle class), and India3 (the bottom ~60% poor). Essentially, India1 is the engine of the Indian consumer economy
This top 10% (around ~30 million households, ~140 million people) has incomes around ~$15,000 per person, putting them in or near a higher-income bracket
If India1 were a separate country, its income level would qualify as “high income” by World Bank standards
These richer households account for a disproportionate share of spending: about 10% of the population (India1) contributes roughly 66% of all discretionary (non-essential) consumption
In contrast, the bottom two-thirds of the population (India3) contribute almost nothing to discretionary spending – in fact, many in this group end up dipping into savings or going into debt even for basic expenses
The middle 20-30% (India2) makes up the rest of the consumer market (about one-third of discretionary spending)
This means the economy is largely driven by a small affluent class. A catchy way the report puts it is that the urban top 10% “over-index” on consumption, spending vastly more than the average Indian. For example, the urban top decile spends about 13 times the national average per person on durable goods
Meanwhile, the majority of Indians spend so little that they hardly register in market terms. Another striking indicator of this divide is the tax base: in FY2023, only about 2% of Indians earned enough to pay income tax (thanks to exemptions, this share will likely drop further), whereas roughly 10% of Chinese and 43% of Americans pay income tax
In other words, only a tiny fraction of Indians have incomes above the tax threshold, underscoring how narrow the well-to-do segment is. In summary, a small wealthy minority (India1) drives consumption, investment, and even tax revenues, while the vast majority lack financial security and spend mostly on basic needs. This economic divide shows a two-speed India: one India enjoying rising incomes and living standards, and another, much larger India that is still living hand-to-mouth.
Breakdown of Income Groups and Spending Habits
The Indus Valley Annual Report 2025 segments India’s population into three broad income tiers, each with distinct income levels and spending patterns. The table below details the population distribution across these income brackets, their approximate per-capita incomes, their contribution to overall discretionary spending, and the predominant spending focus for each group:
| Income Segment | Population Share | Approx. Per-Capita Income | Share of Discretionary Spending | Major Spending Categories |
|---|---|---|---|---|
| India1 (High Income) – top 10% | 10% of population | ~$15,000 per year | ~66% of total discretionary spending. | Luxury housing, premium smartphones, branded goods, travel/entertainment (high proportion of spending is discretionary) |
| India2 (Middle Income) – next 23% | 23% of population | ~$3,300 per year | ~33% of total discretionary spending | Basic consumer durables, education, healthcare, some discretionary goods (spending mix of essentials and limited non-essentials) |
| India3 (Low Income) – remaining 67% | 67% of population | ~$1,000 per year | Minimal discretionary spending | Essentials like food, housing, and basic needs (little to no room for non-essential purchases) |
Source: Indus Valley Annual Report 2025
The top 10% of Indians (India1) have vastly higher incomes and dominate consumption of non-essentials, accounting for about two-thirds of all discretionary spending
In contrast, the bottom two-thirds of the population (India3) live on low incomes (~$1k per capita) and devote almost all of their expenditures to necessities, with nearly 90% of Indians having effectively no disposable income for luxuries or discretionary items. The middle segment (India2) falls in between – they constitute about one-quarter of the population and contribute roughly one-third of discretionary spending balancing essential expenses with some limited discretionary purchases (e.g. consumer electronics, entertainment, better housing and education for their families).
Rural vs. Urban Economic Disparity
The report also highlights stark rural–urban divides in income and consumption patterns. Urban households generally earn and spend more than rural households, and they have greater access to financial services. Meanwhile, rural populations rely more on agriculture and basic consumption. The table below compares key economic indicators between rural and urban India:
| Indicator | Rural Areas | Urban Areas |
|---|---|---|
| Average Per-Capita Spending | ₹4,122 per month (2023–24) – relatively low, reflecting lower incomes | ₹6,996 per month (2023–24)– significantly higher consumption level |
| Spending Pattern (Essentials vs. Discretionary) | Majority of spending on necessities: ~46% of rural household spend goes to food (higher food share), with very little left for discretionary items. Nearly 1 billion rural and low-income individuals have virtually no disposable income for non-essentials. | More diversified spending with a lower share on food (~39% of urban spend) and greater ability to purchase non-essentials. Urban consumers (especially the affluent) drive most discretionary consumption – the top 10% (primarily urban) alone account for ~66% of India’s discretionary spending. |
| Access to Banking & Credit | Improved but limited – thanks to financial inclusion programs, a large portion of rural adults now have bank accounts (about 67% of new accounts opened under Jan Dhan are in rural/semi-urban areas). However, access to credit remains limited; many rural households rely on informal loans or microfinance, and usage of services like digital payments, while growing, lags behind cities. | High access – most urban residents have bank accounts and can access formal credit (loans, credit cards). Urban areas have denser banking infrastructure and higher adoption of digital finance. For instance, a greater share of urban consumers regularly use UPI and other cashless payment modes (reflecting better financial service penetration). |
| Dominant Economic Sectors | Agriculture is the backbone of rural economies. ~60% of the rural workforce is employed in agriculture, and ~70% of rural households depend primarily on farming for their livelihood. This leads to lower average productivity and incomes in rural areas. | Services and Industry drive urban economies. Urban employment is concentrated in sectors like manufacturing, trade, IT, finance, and other services, with relatively few workers in agriculture. These higher-productivity sectors contribute to greater income opportunities and economic output in cities. |
Source: Indus Valley Annual Report 2025 and government data
Urban households earn and spend more on average than rural households, with an urban per-capita monthly expenditure (₹7k) about 70% higher than rural (₹4.1k)
Rural spending is more necessity-driven – nearly half of rural expenditures go to food, versus about two-fifths in urban areas reflecting lower disposable incomes. Consequently, discretionary spending power is heavily skewed toward cities and higher-income groups: the wealthier urban consumers dominate markets for goods like electronics, cars, and entertainment, while most rural consumers can afford little beyond basics
Financial inclusion has improved in rural regions (most households now have bank accounts due to initiatives like Jan Dhan Yojana, yet a gap remains in access to credit and advanced financial services. Urban populations benefit from greater availability of bank credit and digital payment infrastructure, whereas rural communities often rely on cash and informal lending. Finally, the economic base differs: rural livelihoods are predominantly agricultural
fao.org, leading to lower and more volatile incomes, while urban areas enjoy diverse employment across industrial and service sectors that boost overall earning potential. This rural–urban divide underscores ongoing challenges in inclusive growth and equitable development across the country.
Structural Barriers to Wealth Distribution
Several deep-rooted structural factors explain why wealth and income are not evenly spread in India. One major issue is the employment structure and productivity. A huge portion of the workforce is engaged in low-paying, low-productivity activities like small-scale farming or informal labor. Agriculture still employs about 46% of India’s workers but produces only around 15% of GDP
In other words, nearly half of Indians are working in a sector that generates a very small economic output – a classic case of disguised unemployment or underemployment
Many people on farms aren’t fully utilized or profitable, which means their incomes remain very low. At the same time, manufacturing – which historically lifted masses out of poverty in other countries – has not absorbed enough Indian labor. India’s industry has grown, but often in capital-intensive ways that don’t create armies of jobs. The report notes that India faces a “jobless growth” problem in manufacturing partly because factories are using more automation and less labor. With limited new well-paying jobs, surplus workers remain stuck in subsistence farming or informal services.
Another structural barrier is limited investment in human capital (education and skills) for the broader population. India has made great strides in higher education for a select few (for example, producing engineers and doctors), but historically it neglected basic education for the masses. By the 1980s, about 60% of India’s adult population was illiterate, compared to only 22% in China
This long legacy of under-education “trapped much of the population in low-productivity agricultural work” and other menial jobs, because people did not have the skills to transition to better-paying industries. Even today, government spending on education as a share of GDP is lower than many peer countries, and the quality of primary and secondary schooling varies widely. The result is a workforce where a minority is highly skilled and well-paid, but a majority lack formal skills or training, limiting their job opportunities and income growth. There is also a mismatch in aspirations versus reality – for instance, many youth aim for scarce government or desk jobs (viewed as stable and prestigious) and remain unemployed, rather than pursue available work in manufacturing or trade that they consider inferior. This cultural preference further contributes to educated unemployment and wasted potential
Additionally, low household savings and insufficient financial inclusion impede wealth accumulation for most Indians. While India’s national savings rate is moderate, household savings have been falling in recent years
Many families live paycheck to paycheck. In fact, the share of household income that gets saved has dropped significantly – household savings were 84% of total national savings in 2000 but only 61% by 2023
A key reason is rising personal debt: Indians are taking more loans (often unsecured personal loans) to fund consumption. The report points out a “sharp rise in indebtedness of the Indian household”, with household debt hitting an all-time high as many people borrow to make ends meet
Notably, about 3/4 of household debt is non-housing related (e.g. consumer loans, credit card debt), which is high compared to other countries
This means a lot of people are borrowing money for daily needs or small purchases, rather than for building assets like homes or businesses. High debt and low savings keep people financially fragile – any extra income often goes to repaying loans or is held in safe assets like gold, rather than being invested in ways that generate wealth. Other factors, like difficulties in starting businesses or accessing credit for the poor, and the tendency to invest in unproductive assets (land, gold) due to lack of trust or options, also contribute to the slow spread of wealth. In summary, structural issues in jobs, education, and finance create barriers that prevent the vast majority of Indians from increasing their incomes. Too many people are in low-paying jobs, too few have the education/skills for better jobs, and many cannot save or invest enough to improve their financial situation. These long-term issues underpin India’s unequal wealth distribution.
Impact on Consumer Markets
The limited spending power of most Indians has a direct impact on businesses, startups, and overall economic growth. For companies targeting consumers, the effective market in India is much smaller than the population size would suggest. Since only the top 10-20% of people have substantial disposable income, most consumer-focused businesses end up concentrating on that segment. The report explicitly notes that India1 (the top 10%) “constitutes the market for most startups”
In practice, new apps, retail brands, or e-commerce services in India typically launch aiming at the affluent urban customers – those who have smartphones, bank accounts, and money to spend. Only after securing the top-tier users do businesses try to reach India2 (the next ~300 million aspirants), and even then, it’s challenging because this group is “reluctant to pay” and very value-conscious
As for the poorest India3 segment, startups largely ignore it, because they are “beyond the pale” for monetization – simply put, you can’t build a profitable mass-market product if your consumers have almost no money
This dynamic means that many companies in India are competing to win the same relatively small pool of well-off customers. It also explains why certain goods and services (high-end smartphones, airline tickets, dining-out, etc.) have uptake mostly in the big cities and among the upper class, while the majority of Indians remain out of these markets.
For the economy, this concentrated consumer base can limit growth. Sectors that rely on mass demand often underperform because the mass cannot afford much. For example, two-wheeler (motorcycle) sales and entry-level car sales have been sluggish in recent years, as the rural and low-income buyers who drive those volumes are still financially strained
On the other hand, companies are seeing growth in premium segments. The report observes that India’s consumption is “not widening as much as it is deepening”, meaning growth comes from existing consumers spending more, rather than a broad new swath of consumers entering the market. Data shows a rise in premium products: sales of premium and executive motorcycles have risen, the share of high-end and luxury housing has doubled in the last five years, and even in electronics, sales of low-end smartphones have dropped while mid-range and premium phones have grown
In other words, wealthier Indians are upgrading their consumption (buying more expensive bikes, homes, phones, etc.), but the number of new consumers who can afford basic models isn’t expanding as fast. This trend, often called “premiumization,” is a double-edged sword: it’s good for companies selling luxury or premium goods, but it also signals that the mass market is not catching up. Businesses have to tailor their products either to fit the tiny elite (to maintain higher margins) or make ultra low-cost offerings for the price-sensitive majority (which can mean very thin profits). Many startups adopt a “India1-first” strategy because that’s where the money is, and then struggle to effectively reach India2/India3 without losing money. Overall, low spending power among the majority constrains domestic demand – a potential brake on India’s long-term growth. If only a small fraction can buy cars, computers, or use financial services, those industries cannot scale to the level one might expect in a country of India’s size unless incomes broaden. It also means the government cannot rely on broad-based consumption or income taxes from the masses, since most people simply don’t have the means – again concentrating dependence on the top earners.
Future Outlook – Bridging the Divide and Boosting Incomes
Closing this wide income gap and bringing more Indians into the consuming class is crucial for the country’s future. It would not only improve people’s lives but also unleash a bigger domestic market for businesses, fueling more robust economic growth. Here are some policy recommendations and strategies that could help improve income levels and consumer spending in India:
- Invest in Education and Skills: Enhancing human capital is fundamental. The government should increase spending on quality primary and secondary education and vocational training. By improving basic education for all, future workers can be more productive and adaptable. For instance, reducing illiteracy and improving schooling in rural and poor areas will equip people with skills to take up better-paying jobs. Additionally, expanding skill development programs (in trades like manufacturing, plumbing, IT, etc.) can help the large youth population qualify for jobs beyond agriculture. Over time, a more educated and skilled workforce means higher incomes and more consumers with spending power.
- Create More Quality Jobs: India needs to generate jobs on a massive scale, especially outside agriculture. This means boosting manufacturing, construction, and modern services that can absorb workers. Policies can encourage labor-intensive manufacturing (for example, making it easier to set up factories and providing incentives for industries that hire more workers). Investing in infrastructure projects (roads, rail, housing) can create construction jobs for millions, raising incomes for those currently underemployed in farming. Supporting small and medium enterprises (SMEs) is also key, as they are a big source of employment. In short, economic growth must translate into job creation. If more people get steady, formal jobs with decent wages, they will have more money to spend. Removing hurdles like complex labor laws, difficult land acquisition, and inadequate power supply will make it easier for businesses to expand and hire. By addressing the “jobless growth” issue, India can ensure that GDP growth benefits a broader population through employment.
- Raise Agricultural Incomes: Since so many Indians still depend on farming, improving the agricultural sector is crucial to reducing poverty. This could involve raising productivity for small farmers (through better irrigation, seeds, technology, and training) so they can earn more from their land. Diversifying rural income through allied activities like dairy, poultry, food processing, or rural crafts can also help. Additionally, reforming agricultural markets (so farmers get better prices and reducing middlemen) and offering a strong minimum support price for crops can increase farmers’ earnings. With higher rural incomes, the rural population will have more disposable income to spend on consumer goods, which can broaden the consumer base. Land reforms and clarity of land rights may also empower farmers to invest or use land as collateral for loans instead of hoarding wealth in gold. When the largest employment sector (agriculture) becomes more remunerative, it directly lifts consumption at the bottom of the pyramid.
- Continue Formalization and Financial Inclusion: Bringing more of the economy into the formal sector will improve income security and access to finance for ordinary citizens. Formal jobs come with social security, steady pay, and often better wages. The government’s push for formalization – for example via goods and services tax (GST) implementation and digitization – should continue, making it easier and beneficial for businesses to be part of the formal economy. At the same time, expanding financial inclusion gives low-income people tools to save and borrow safely. India has made progress here through the Jan Dhan Yojana (opening bank accounts for millions) and mobile payment systems. These efforts need to be strengthened so that even the poor can access credit, insurance, and banking. Microfinance and self-help groups can be supported to provide small loans for businesses in poorer communities. When people move from the informal shadows to the formal financial system, they can build credit histories, secure loans to start enterprises, and gradually increase their earnings. Formalization also means more people pay taxes, giving the government more resources to spend on public services.
- Strengthen Social Welfare and Direct Support: To uplift those who are currently very poor, the government can enhance social welfare programs and use technology to deliver benefits effectively. India has already become a leader in using Digital Public Infrastructure (DPI) to support citizens – the report notes that “thanks to DPI, India is now a digital welfare state” where digital systems like Aadhaar, UPI, and direct benefit transfers (DBT) ensure subsidies and cash reach the needy without leakage. Continuing to leverage these tools is critical. Programs like cash transfers to farmers, rural employment schemes (e.g., MGNREGA), food ration subsidies, and healthcare schemes (Ayushman Bharat) put money in the hands of the poorest, which immediately boosts their ability to spend on essentials. Over time, a stronger social safety net can free up poor households to spend a bit more (rather than saving every rupee for emergencies). Policymakers could consider targeted income support or conditional cash transfers that encourage children’s education and health while supplementing household income. By improving basic services (health, sanitation, housing) for the poor, government can also reduce the financial burden on these families, indirectly increasing disposable income.
- Encourage Broad-Based Economic Growth: Finally, a general strategy is to ensure that growth is inclusive – that the gains of the economy reach all sections of society. This might include progressive taxation and using those funds for public goods, supporting lagging regions (like poorer states or rural districts) with special economic packages, and encouraging investment outside the big cities. For example, creating industrial hubs or IT parks in smaller cities can create local jobs and prevent all wealth concentrating in a few metros. Encouraging entrepreneurship at the grassroots level is also important: if more people can start small businesses (with less red tape and better access to credit and training), they can generate income for themselves and others. Overcoming structural issues is a long-term process, but with sustained reforms and smart investments, India can expand its middle class. As more families move from poverty into stability, they will join the consumer economy – buying appliances, using services, and paying taxes – thus reinforcing growth in a virtuous cycle.
Conclusion:
India stands at a crossroads where one part of the population enjoys rising affluence while another large part struggles with basic livelihoods. The Indus Valley Annual Report 2025 data makes it clear that without addressing the underlying issues – jobs, education, and equitable growth – the majority of Indians will remain on the fringes of the economic story. However, the future outlook is not bleak if the right steps are taken. By focusing on inclusive policies that uplift incomes across the board, India can broaden its consumer base. Empowering more people with the ability to spend will not only improve millions of lives but also unlock domestic demand for businesses. In time, a more even distribution of wealth and spending power will lead to more sustainable and robust economic growth, truly realizing the potential of India’s massive population. The challenge is substantial, but with concerted efforts, India can move towards a scenario where growth and prosperity are shared more widely, converting its demographic strength into an economic boon for all.
