India's missing middle?

A lot of consumer startup reports that I have come across, have a common thread - the rise of India’s middle class and its growing discretionary income fueling India’s consumption growth. And the argument is theoretically sound. India has a massive, burgeoning middle-class; some reports estimate that we will add 75 million middle income households by 2030; and by 2047, 60% of the population will be in the ‘middle-class’. If the discretionary spending power of this middle class continues to rise, we might just be on the brink of a consumer boom, much like we’ve seen in developed countries.

But I have been asking myself a simple question: is this picture-perfect story playing out in reality?

The middle class dream (our desi version of the American dream) is faltering. Wage growth over 2019-2023 across major sectors was less than 5% (barely beats inflation, or doesn’t). The cost of essentials - housing, education, healthcare, has skyrocketed. According to National Housing Bank data, a 1,200 square feet home in Mumbai today costs INR 3.5 Cr; school fees have been increasing at 15-20% y-o-y in multiple cities (while official education inflation figures still imply a 4% increase); and healthcare is as expensive as ever. After all these expenses, the pie of income left for middle class families for discretionary spending feels smaller.

And you can see it playing out on the ground as well. My experience, from my hometown in a tier-2 city indicates that consumption is getting concentrated at two opposite ends (barbell effect), especially in discretionary purchases (think dining out, apparel & accessories etc.)

On one end, you have extreme value-for money purchases - budget restaurants, non-air conditioned outdoor seating, no-frills dhaba-like experience. The primary driver here is price. On the other end, you have high-end, premium experiences. I see people flocking to fine-dining restaurants or to buy premium goods because they offer a superior experience.

The businesses struggling the most are the ones caught in the middle - the ones trying to offer a slightly better product, for a moderately high price.

And you can find parallels in the stock market too. A look at 5-year sales growth of listed apparel companies paints a similar picture. Over the past 5 years, sales of Trent (entity which owns Westside, Zudio), which caters to the aspirational segment, have grown at a massive 38% CAGR. Ethos Watches, a luxury watch retailer has also seen a strong sales growth of 23% over the last 5 years. On the other hand, Arvind Fashions (owns Arrow, Tommy Hilfiger, CK), positioned as mass-premium has seen muted growth at just 3.3% CAGR.

So what does this mean?

It feels like the narrative of a simple, across the board consumption boom is missing the nuance. The middle class is not splurging. It is paying more just to maintain their standard of living, and in response, becoming ruthless in reallocating what’s left. They are cutting out the mediocre to afford either a truly differentiated experience or extreme value.

Against this backdrop, what are the pockets of opportunities?

For brands that refuse to play at the extreme ends, building for the “middle” is incredibly difficult but not impossible. It requires an absolute differentiator. This differentiator can come from -

• Democratization of luxury: Most middle‐class Indians have been shut out of premium experiences (think ₹8,000 spa day at 5-star hotel) until someone built the right infrastructure. Urban Company cracked this by vetting, training, and standardizing home‐service professionals to offer a hotel‐grade spa services at affordable prices

• Multiply value, match the price: Cult fit didn’t compete on price, they gave 4x the experience for the same ticket. Cult fit offered group workouts, personal trainers, multiple studios, and app-based tracking at price equivalent to your local gym

• Target a niche: Brands like Epigamia (greek yogurt for urban health seekers), Mamaearth (clean-label skincare) won by obsessing over a specific segment. They tailored product features, messaging and distribution to resonate deeply with their target audience and outpaced generalist competitors

Of course, these are just a few ways to slice the problem. But they all point back to the same fact: building for the ‘middle’ is an incredibly tough game, and winning requires a truly exceptional, defensible moat. For most brands, venturing into this space means fighting uphill for attention, relevance, and wallet share.

That’s not to say the entire middle-class consumption story is a bust. Some sectors, particularly essentials like finance, healthcare, and insurance will still find ways to ride the steady wave of growth as incomes slowly rise. The demand here is less about aspiration and more about necessity.

But for everything else, the middle class is nobody’s easy ticket, and it’s still where the most interesting business stories are waiting to be written.