Discretionary Spending To Contribute 56% Of Indian Households’ Expenditure By FY’21

With the rise of India’s middle class population, discretionary spending is gradually getting more prominence in the consumption basket, finds a recent Consumer Consumption Insights white paper published by Hansa Cequity , a leading customer marketing company.

The white paper states that the share of discretionary spending is expected to contribute 56% of Indian household expenditure by FY21. Estimates show food (including processed food) & beverage (42%), education (7%), conveyance (7%), medical (5%) and durable goods (6%) would find the top spot in household consumption expenditure for 2021.

The report summarises the key takeaways on Indian household’s consumption pattern, debt and asset position, usage of plastic cards, brief insights on consumer confidence survey along with our estimates and forecasts and attempts to highlight changes happening in India’s consumer economy parallel to India’s growth.

The white paper also forecasts some key changes with respect to the rural-urban spend. It predicts that in rural areas expenditure on conveyance, education and medical is on the rise, whereas in urban areas conveyance, personal care and medical will account for large part of non-food expenditure in urban areas. This signifies that larger portion of household’s income will be spent on self-care, self-development, and education. It also predicts motorcycle/scooter, mobile phone handset and other durables to show a substantial rise by 2025-26.

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Insights from the study reveal food (including processed food) & beverage (42%), education (7%), conveyance (7%), medical (5%) and durable goods (6%) would find the top spot in household consumption expenditure by FY2021.

It however, found that credit cards are still lagging behind in the payment choice. Undoubtedly, cash and debit cards are the preferred choice. High interest rates, pre-screening requirements, security fears by households are some of the reasons for this lag. This leaves a lot of space for mobile payment system (using mobile as card), mobile wallets and other innovative channels of payment (pre-paid, EMI cards by big hypermarkets, retail brands).

According to various estimates in the market, India’s internet population is expected to reach half a billion by 2018. This presents a huge opportunity for companies to target, segment, interact with their present and future customers. This makes it very important for companies to analyse their customer’s social media preferences to influence them online for their final spending decisions.

Hansa Cequity Co-founder and CEO, Swaminathan S. said, “Household consumption data and insights and its changing trends over time show several interesting current and future share-of-spends by Indian households, their tastes and preferences, changing socio-economic patterns etc. and therefore their impact in spending patterns and how they are likely to shape in the future. If consumption data is seen from the lens of the basket of what people buy –it clearly points out to on-going larger share of discretionary spends – it also gives a leading indicator of the type of household they are or moving towards.”

Hansa Cequity Co-founder and COO, Ajay Kelkar added, “With India’s middleclass population on the rise, the marketers are keen to understand on how much each individual household spend & what are the changing dynamics of these spending patterns. Knowing how the households (rural/urban) are likely to spend, on which product categories, segments and in what proportion, and the underlying dynamics involved becomes ever more important for companies, brands, policymakers and investors.”

The report, prepared by the research team from Hansa Cequity Customer Consulting Practice supported by Econometrics Research Team, is aimed at helping marketers navigate the changing dynamics of Indian households’ spend trajectory.