In the vast landscape of India’s economic growth, a recent report by Blume Ventures sheds light on the intricacies of the country’s consumption patterns and their implications for the startup ecosystem.
While India boasts a population powerhouse, the spotlight falls on a specific segment—the 30 million households with a per capita income exceeding $15,000. These households not only drive direct taxes but also significantly influence the market for startups, presenting a nuanced picture of the Indian consumer class.
A mere 1.5% of Indians, represented by these 30 million households, contribute to India’s entire income tax revenue. Owning personal cars, wielding credit cards, and dominating mutual fund and stock market investments, this select group is at the forefront of India’s economic landscape. Their preferences dictate market trends, with a growing inclination towards premium products, as evidenced by the decline in entry-level vehicle sales and the surge in SUV popularity.
The Indian consumption class’s evolving taste is exemplified by the surge in Apple’s sales, projected to surpass Hindustan Unilever Ltd (HUL) sales in FY24. The insatiable appetite for premium products is reshaping the market, reflecting a shift in consumer behaviour that startups need to navigate strategically.
While the consumption class is expanding, there are challenges to consider. The Indus Valley report suggests that 75% of retail spending still revolves around necessities. With per capita GDP stagnating at around $2,500, discretionary spending has only marginally increased from 21% in 1999 to 29% in 2022–23. India’s consumption remains under-indexed in various categories, signaling a potential saturation point for startups targeting this segment.
India’s fintech sector has played a pivotal role in expanding the consumer class by opening up the credit market. However, the report indicates that the quality of borrowers may have reached its upper limit. With venture funding dropping to pre-2017 levels, there is a looming question: Have Indian startups reached their growth ceiling?
According to the report, the growth trajectory of Indian startups depends on where one looks. A wave of consumer tech startups is emerging, focusing on distinctly Indian use cases and monetising through micro-transactions. Digital native brands and unique models in dating, OTT, spirituality, elder care, and manufacturing are seen as the frontiers of the future. Quick-commerce players like Blinkit, Instamart, and Zepto are also global outliers, representing the diversity in India’s startup landscape.
As India’s startup ecosystem navigates through shifting consumer dynamics, CNBC-TV18 spoke to Sajith Pai, Partner at Blume Ventures and Karthik Reddy, Co-Founder and Managing Partner at Blume Ventures to discuss the challenges and opportunities that lie ahead.
Watch the accompanying video for the entire conversation