Contrast in Diwali demand for luxury and budget goods sheds light on India’s income inequality

Before it lights up the skies with fireworks, Diwali brightens up local markets and e-commerce sales as the festive spirit makes Indians loosen their purse strings. Most big purchases from that new bike to electronics and gold, are made during Dhanteras that kicks off celebrations. After shattering a 10-year record with a business of Rs 1.25 lakh crore last year, Diwali sales this year are driven by a demand for luxury goods. But while people are ready to shell out more than Rs 1.5 lakh on premium products, the loss of appetite among the low-income group may spoil celebrations.

Are citylights overshadowing festivities in villages

Relatively weaker demand for phones priced lower than Rs 10,000 as well as two-wheelers, which represent rural demand, comes as 36 per cent in urban pockets are expected to spend more on Diwali, according to CAIT. This trend sheds light on India’s inequality where the average income in urban India is twice that in villages, where 70 per cent of the population lives. Although last year Diwali sales registered a massive uptick driven by pent up demand during the pandemic, this year the lower-income group’s willingness to spend isn’t bouncing back. This isn’t good news in India where 60 per cent growth comes from consumption by middle and lower-income households that make up a bulk of the population.

Classes can’t make up for lack of demand among masses

Although more among the urban rich are willing to splurge as much as Rs 1.5 lakh on double door refrigerators, washing machines or luxury goods, 70 crore adults in India have a personal wealth below Rs 8 lakh, as per Statista research. Amid high inflation, unemployment rates are also between 7 to 8 per cent, and an ADP report last year showed that more than 80 per cent Indians felt they were underpaid at some point. This trend was observed while corporate employees in India received a pay hike of 10.6 per cent last year, and are likely to get more this year.

Around 1.16 billion out of 1.4 billion people in India survive on less than Rs 800 a day, while the top 10 per cent control more than 70 per cent of the wealth. This explains why mass demand isn’t growing, while the handful of wealthy urban Indians are splurging more. But a lack of rural and mass consumption, will hurt the Indian economy in the longer run.