Beyond the Hype: Rethinking India’s ‘Premiumization’ Narrative

Ira Singh
Khabar Khabaron Ki,19 Feb’24

In recent times, the notion of the “premiumization” of the Indian economy has captured the imagination of the financial world ,with many saying that Indian consumers are buying more expensive products than ever before.Data points reveal a surge in domestic passenger vehicle sales, a significant rise in the sale of luxury homes, and an increase in the number of high-end mobile phone connections.Moreover,as the global markets continue to ride the wave of optimism, one significant contributor to the surge in equities is emerging: wealthier India. The country’s growing affluent class, buoyed by robust economic growth and favorable market conditions, is increasingly turning to equities as a preferred investment avenue.

However, a closer examination of the data reveals a more nuanced and perhaps contrasting reality.Beneath the surface of this apparent success story, there are notable gaps that raise concerns about the sustainability and inclusivity of this trend.

While certain segments of the Indian economy are indeed moving towards premiumization, a significant portion of the population continues to struggle. Private consumption expenditure, a major contributor to the Indian economy, is expected to grow at the slowest rate since 2002-03. The demand for entry-level two-wheelers remains low, and the majority of India’s vehicle population still consists of two-wheelers. The number of passengers using the Indian Railways has not yet fully recovered post- pandemic, indicating that the premiumization story may not apply to the entire country.

Data from the Securities and Exchange Board of India shows that 90% of investors lose money while trading options and other derivatives. Additionally, an increase in credit card outstandings and personal loans is a concerning indicator. The surge in UPI transactions and credit card numbers may not fully capture the economic reality of the broader population.

Further, the high demand for work under the Mahatma Gandhi National Rural Employment Guarantee Scheme indicates trouble on the jobs front, and the extension of the scheme providing free food grains to over 813 million beneficiaries highlights the ongoing economic aftershock of the pandemic.

In essence, while the concept of premiumization may hold true for certain segments of the Indian economy, including creation of opportunities in the stock market, it does not reflect the full reality of consumer behavior and market dynamics. It is essential to take a more nuanced and inclusive approach to analyzing data, considering the diverse socio-economic factors at play, before making investment decisions based solely on the premiumization narrative.

While the surge in equities fueled by wealthier India presents an optimistic outlook for the country’s economy, it is essential to address the gaps in this story. Achieving sustainable and inclusive growth requires not only fostering a conducive environment for investment but also addressing underlying structural challenges such as income inequality and market volatility. By doing so, India can harness the full potential of its burgeoning economy and ensure that the benefits of prosperity are shared by all segments of society.