From kirana to currency: Small towns are scrambling for dollars

For the past few years, a big story in India's economy has been that small towns are spending more. It all began with kirana, as small-towners began spending more on premium FMCG products. But they are also buying more homes, investing more money, shopping more online and driving growth for luxury goods too. Now they are demanding something far more revealing -- dollars. Tier-2 and tier-3 cities now account for 53% of India's forex demand, overtaking the metros, as per Thomas Cook India’s Forex Report 2026, cited by TOI.

The shift suggests that India's consumption story is moving into a new phase, where rising prosperity in smaller towns is no longer expressed only through domestic spending but also through overseas travel, international education and global lifestyle choices. The rush for foreign currency can be seen as the latest marker of a maturing consumer market beyond metropolitan India. The latest data attests that India's consumption story is no longer being written in Mumbai, Delhi, Bengaluru and other large cities alone.

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The shift marks an important stage in the evolution of India's consumer economy. Rising incomes in tier-2 and tier-3 cities are no longer translating only into purchases of smartphones, fashion, homes or mutual funds. They are now creating demand for overseas holidays, foreign education and international business travel. That is a very different consumption story from the one India was telling a decade ago.

The consumption engine shifts

For years, India's growth narrative was closely tied to urban consumption in large cities. That equation has changed dramatically.

Earlier this year, ET reported that India's tier-3, tier-4 and tier-5 towns had overtaken metros in retail spending growth. India’s small (semi-rural, classified as tier 3-5) markets, with populations as low as 5,000, stole a clear lead in physical retail spending, outpacing growth in metros and tier-1 and tier-2 cities in 2025, as per a report by Mastercard, ClarityX and MapmyIndia on ‘decentralisation of demand’.

This was in clear contrast with retail spending trends in 2023-24, when tier-1 and tier-2 markets had been called out by consumer companies across sectors, such as Nestle, Hindustan Unilever, Maruti and Hero, as the country’s largest consumption cohorts.

The change is also visible in corporate strategy. ET reported in February that Trent, the Tata Group's retail arm, is increasingly focusing its expansion plans on smaller towns. The company's management indicated that demand recovery and discretionary spending were becoming stronger outside the biggest cities, making these markets central to future growth.

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The confidence of retailers is being matched by investors. A growing number of regional retail chains serving smaller cities are tapping capital markets and pursuing IPOs to fund expansion. The logic is that the next wave of consumer demand is increasingly coming from beyond metropolitan India.

These developments point to a structural shift. Smaller towns are no longer peripheral markets waiting to catch up with metros. They are becoming growth centres in their own right.

The rise of the aspirational consumer

The story is not merely about higher consumption volumes alone but increasingly about the nature of consumption.

Several recent reports suggest that consumers in smaller cities are moving up the value chain. Indian households are spending more on experiences, travel and premium products as incomes rise and aspirations expand. The shift is visible across categories ranging from apparel and lifestyle products to travel and leisure.

A similar trend might be emerging in housing. According to a recent TOI report, housing sales volumes in tier-2 cities declined by 10% in 2025, but transaction values remained broadly stable at around Rs 1.48 lakh crore because buyers increasingly opted for more expensive homes. In other words, consumers were purchasing fewer units but spending more per purchase.

A recent Worldpanel report showed that premium consumers are loosening their wallets even as spending patterns in some mass categories remain under pressure. The premiumisation trend is increasingly visible outside metros as well, indicating rising purchasing power and confidence among consumers in smaller urban centres.

What is striking is that this spending is no longer confined to material goods but is increasingly extending to experiences and lifestyle choices that were once associated largely with affluent metropolitan households.

Financialisation of small-town India

The small-town transformation is not limited to consumption. The rising prosperity is also visible in how people save and invest. Participation in stock markets and mutual funds from tier-2 and tier-3 cities has been growing rapidly. Demat account openings and mutual fund investments from smaller cities have risen sharply, reflecting both rising disposable incomes and increasing financial awareness.

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Historically, households in smaller towns tended to favour physical assets such as gold and real estate. The growing appetite for equities and mutual funds suggests a more sophisticated approach to wealth creation. It also indicates that households are accumulating surplus income that can be deployed beyond basic consumption needs.

This matters because financialisation and consumption often reinforce each other. As household wealth grows through investments, confidence rises and spending patterns evolve. The result is a consumer base that is increasingly willing to spend on discretionary purchases and experiences.

And now they want dollars

The latest chapter in this story comes from the foreign exchange market. According to Thomas Cook India's Forex Report 2026, as reported by TOI, tier-2 and tier-3 cities now account for 53% of India's total forex demand. Tier-2 cities alone contribute 41%, while tier-3 cities account for another 12%. Metros and other tier-1 cities together account for the remaining 47%.

The numbers are significant because foreign exchange demand is often a proxy for outbound engagement with the global economy. Consumers buy foreign currency when they travel abroad, send children overseas for education or undertake international business trips.

The report found that leisure travel accounted for 57% of forex demand, compared with 27% for corporate travel and 16% for student travel. That is perhaps the most important finding. The dominant driver of foreign currency demand is not necessity. It is leisure.

A decade ago, outbound tourism was largely concentrated among affluent residents of major cities. Today, a growing share of international travellers are coming from cities that were once considered secondary markets. The report's observation that tier-2 and tier-3 cities now generate more than half of forex demand suggests that global travel is becoming mainstream among India's emerging middle class.

The demographic profile underlines that conclusion. According to the TOI report, travellers aged 25 to 40 account for 37% of forex demand, while those aged 41 to 60 contribute 36%. Together, Millennials and Gen X account for nearly three-fourths of total forex usage. These are the prime earning years for many households, and their growing appetite for overseas travel reflects rising confidence in future incomes. The destinations also reveal interesting consumption trends. The US dollar accounts for 49% of total forex demand, according to the report. European currencies such as the euro and pound account for 23%. Asian currencies make up 11%, while Middle Eastern currencies contribute 9%.

Small-town consumers are no longer looking only inward. They are increasingly participating in global consumption.

Small towns going digital

The forex data also reveals another trend that mirrors developments across retail and finance. Digital forex adoption across Thomas Cook India's channels rose 25% year-on-year, while usage of DIY platforms increased 50% over the last two years. Although branch-assisted transactions still account for 75% of purchases, digital channels are gaining ground rapidly.

This mirrors broader trends in India's consumer economy. The next phase of online grocery growth, too, is expected to come from tier-2 and tier-3 cities due to rising adoption of e-commerce and quick commerce. Digital commerce, digital investing and now digital forex purchases all point to the same conclusion: consumers in smaller towns are becoming increasingly comfortable with technology-led financial and commercial transactions.

The result is a more connected consumer market where geographic distance matters less than it once did.

What the small-town dollar rush means for the economy

The rise of small-town India as a consumption powerhouse is good news for economic growth. A broader consumption base makes growth more resilient and less dependent on a handful of metropolitan centres. It creates opportunities for retailers, financial institutions, travel companies and digital platforms.

The emergence of outbound travel demand also reflects rising household prosperity. Economists often view spending on international tourism as a higher-order consumption activity. Households typically prioritise necessities, then discretionary goods and only later allocate substantial spending to overseas travel. The fact that smaller-city consumers are now entering this stage suggests a maturing consumer economy.

At the same time, there are macroeconomic implications too.

Every overseas holiday, foreign university payment or international shopping trip requires foreign currency. If outbound travel from smaller towns rises rapidly, demand for dollars and other foreign currencies will rise as well. While India's foreign exchange reserves remain substantial, a sustained surge in outbound spending contributes to foreign exchange outflows and can add pressure on the current account.

At the margin, stronger demand for dollars can also create pressure on the rupee, especially if foreign currency outflows rise faster than inflows. That is one reason policymakers often encourage domestic tourism and local spending. In recent years, the government has repeatedly urged Indians to explore domestic tourist destinations and has also promoted the idea of hosting weddings in India rather than overseas. Apart from supporting local businesses and employment, such spending keeps a larger share of consumption within the domestic economy.

However, this doesn't diminish the significance of the forex trend. If anything, it highlights how far India's consumer story has progressed. Small-town Indians are buying more goods, investing more money, consuming more services and increasingly travelling abroad. The same towns that are driving retail sales and mutual fund inflows are now driving demand for dollars.

This may be a clear sign yet that India's consumer revolution is moving beyond the metros, as small-towners no longer splurge only on premium goods but have now graduated to higher-order consumption activity.