India's trump card: Why the West hankers after Indian market

Before liberalisation, India was largely out of reach for Western companies. It was hard for them to invest or sell their goods in India. But decades after liberalisation, India has changed. It is now the world's most sought-after consumer market. That's why as tariff wars rage in the world, Western countries are eager to seal trade deals with India. In the past few decades, a large consumer class has emerged in India which has consumption patterns that rise above the pre-1991 bare necessities of roti, kapda aur makaan. This consumer class is the reason developed countries want access to India to sell their goods at lower tariffs. This is the trump card India holds in its trade negotiations. India now has a large number of people who will buy American bourbon whiskey and Harley-Davidson motorcycles or British luxury cars.

The third-largest consumer market soon
India is on track to become the third-largest consumer market in 2026, overtaking Germany and Japan, and behind the US and China, as people in the affluent category increase, investment bank UBS said in a report last year. “As of 2023, there were an estimated 40 million people in India (4% share in the population of 15 years and above) in the affluent category (annual income above $10,000), and these will likely more than double in the next 5 years,” UBS said, highlighting 88 million people with over $10,000 annual income by 2028.


An earlier report by BMI, a Fitch Solution company, made the same prediction. It said India’s household spending per capita would outpace that of other developing Asian economies like Indonesia, the Philippines and Thailand at 7.8% year-on-year. The gap between total household spending across ASEAN and India will also almost triple, it said.

Though both the reports point at a significant increase in India's affluent class which has driven the consumption sharply in recent times with the trend of premiumisation catching on across categories, India's consumption story has lately been broadbased with the emergence of a middle class which has long been minuscule.

The middle-class bulge
As Western governments want lower tariffs for their products so that they don't remain uncompetitive in the Indian market, Western multinational giants, especially those in the mass consumer segment, come to India looking for volume growth. India's market size has a big pull. Imagine when in addition to even larger volumes, they also come to India looking for profit margins; such a large middle class will obviously give colossal purchasing power to India and the capacity for huge discretionary spending.

This will also mean desi companies easily growing into global biggies supported by vast domestic scale. Growing disposable incomes, along with the rise of the middle class, will make India a consumption powerhouse.

Imagine more than half of India's population being the middle class, with typical middle-class inclination for quality education, and exhibiting typical middle-class mindset of striving slowly, steadily but resolutely to make a class jump. Such a large number of college-educated professionals will surely unleash innovation and enterprise at a gargantuan scale.

The rise of the rich
What makes the Indian market particularly attractive for foreign companies is the rise of the rich in India who have higher purchasing power. As Western economies struggle with growth, ages and consumer spending, India offers a large population of the rich who will splurge on high-end items.

Number of Indian high-net-worth individuals (HNWIs), those having assets more than $10 million, rose 6 per cent last year to 85,698, according to Knight Frank. Global property consultant Knight Frank recently released its 'The Wealth Report 2025', which estimated the HNWI population in India at 85,698 in 2024, as against 80,686 in the preceding year. The number is expected to rise to 93,753 by 2028, reflecting India's expanding wealth landscape, the consultant said. India's billionaire population has also seen a strong year-on-year growth in 2024.

India's tariff trade-offs
Since India is transitioning from a service-led economy to one with emphasis on manufacturing too and also aims to become a export powerhouse, it too needs access to markets in other countries for its goods, India large consumer market with a sizable population of affluent consumers gives India leverage in trade negotiations.

India can leverage its rich consumers to gain access for its mass products in Western countries. ET has reported that India has offered to allow unlimited imports of electric vehicles priced more than GBP 80,000 (about Rs 89 lakh) from the UK in lieu of a larger export quota of smaller EVs priced less than GBP 40,000 (Rs 44 lakh) to the country in a bid to iron out differences holding up finalisation of a free trade agreement (FTA).

The proposal, if agreed upon by both countries, will benefit Indian automakers like Maruti Suzuki and Mahindra & Mahindra, which have firmed up plans to scale up EV exports to Europe to leverage economies of scale while the segment matures locally. Tata Motors' owned British luxury car maker Jaguar Land Rover (JLR) similarly would be able to step up exports of EVs from the UK for sale in India. The company currently sells a sole EV model-Jaguar I-Pace-in India.

A large and growing consumer market offers India a strong hand to play in trade negotiations with developed countries. As India's consumer market grows and adds more affluent consumers, India will gain stronger chips to negotiate trade deals with developed countries.