India to Surpass Japan as Third-Largest Consumer Market by 2026

09 Sep, 2024

India to Surpass Japan as Third-Largest Consumer Market by 2026

UBS Securities projects that India will surpass Japan to become the world's third-largest consumer market by 2026. This forecast is grounded in India's rapid economic expansion and a notable increase in household consumption. Over the past decade, India's household consumption has doubled, reaching $2.1 trillion in 2023 with a compounded annual growth rate (CAGR) of 7.2%.

UBS draws comparisons between India's growth trajectory and China's past economic performance. The firm notes that India's private consumption, though only 30% of China's total in FY23, surpasses China's consumption levels at a similar stage of development. This suggests that if India maintains its current growth trajectory, it could eventually match China's present market size.

Further analysis shows that India's household income as a percentage of GDP is significantly higher than China's, with current consumption levels comparable to China's in 2006-07. This indicates strong potential for continued growth driven by labor income, which is tied to wage and employment growth.

India's urban wage growth, which averaged around 10% annually from 2011 to 2020 and surged to approximately 14% in 2022, mirrors China's past wage increases. Additionally, UBS highlights the potential for India to shift labor from agriculture to secondary and service sectors, which could enhance productivity and further boost consumption growth.