India is poised to become the world’s third largest consumer market by 2026, surpassing Germany and Japan.

India is set to consolidate its position as a global economic superpower as it is set to become the world’s third largest consumer market by 2026, according to UBS’s ‘India Economic Perspectives’ report.

Despite the challenges faced, the country’s consumer market has shown remarkable resilience and growth over the past decade.

According to the report, India will overtake Germany by 2024 and Japan by 2026 and strengthen its position as a global economic superpower. The country’s rapid progress is driven by several key factors, including its large population and growing middle class.

In 2023, India’s domestic consumption is projected to grow to US$2.1 trillion with a compound annual growth rate of 7.2 percent, almost double from the previous decade.

This growth rate has overtaken major economies like China, America and Germany. The impressive growth trajectory positions India as one of the fastest growing economies and the fifth largest consumer market globally.

Projections indicate that India will become the world’s third largest consumer market by 2026, surpassing Germany and Japan. This forecast comes as India’s consumer market continues to demonstrate strong growth and expansion.

A key driver of this growth is the emerging wealthy class in India. Euromonitor data shows that in 2023, about 40 million individuals, 4 percent of the population aged 15 and over, belonged to the affluent class, with an annual income of more than USD10,000.

Projections indicate that this figure will more than double over the next five years, indicating a significant expansion of purchasing power among the Indian population.

India’s large domestic market, which is capable of absorbing manufacturing output, gives it a competitive edge over its Asian peers, especially in leveraging the ‘China+1’ supply chain strategy.

Additionally, policy initiatives and structural reforms have further enhanced India’s attractiveness as a manufacturing hub and consumer market.

However, analysts stress the need for continued high-quality job creation to ensure long-term consumption growth.

Despite these positive trends, India’s consumption growth has displayed some unevenness, characteristic of a K-shaped pattern post-pandemic.

The “K-shaped pattern” refers to an economic trend where different sectors of society have different outcomes, leading to an overall increase in economic inequality.

While the affluent sections of society have shown strong demand for premium goods and services such as luxury cars, expensive housing and high-end smartphones, demand for entry-level and mass-market products has waned.

Factors contributing to this divergence include differential income sustainability during the pandemic, better access to consumer credit, and lower household savings.

Looking ahead, analysts expect domestic consumption growth to remain below trend in fiscal years 2025 and 2026, with an estimated growth rate of 4-5 percent year-on-year.

Urban mass market demand is expected to remain modest due to subdued corporate wage growth and subdued personal credit growth. However, the premium and affluent segments are expected to continue to perform well, driven by factors such as improvement in rural consumption, expected normal monsoon and improvement in anticipated capital expenditure.

India’s rise to become the world’s third largest consumer market underlines its growing economic importance on the global stage.

With a young and dynamic population, coupled with ongoing reforms and investments, India presents vast opportunities for businesses and investors, indicating a promising future for the country’s economy and consumer market.