India’s consumer base is far from uniform, with purchasing power spread unevenly across households.
According to Executive Chairman at L Catterton India and former Chairman & CEO of Hindustan Unilever, the recent GST rate cuts carry the potential to significantly widen spending capacity, particularly for lower- and middle-income families who are most sensitive to price changes.
Highlighting the broader impact, he noted that GST cuts from 18% to 5% across several consumer categories represent a meaningful transfer of benefits.
Indian consumer landscape is highly diverse, divided across distinct income groups. At the top, around 3% of households have purchasing power comparable to Western economies. This is followed by roughly 11% that make up the classical upper middle class.
About 30% of households fall into the lower middle class or archetypal middle class — families working hard to move from fulfilling basic needs to aspiring for wants.
The largest segment, over 50% of households, lies at the bottom of the pyramid. While this group may not face hunger today, their annual household income typically remains below ₹3 lakh, leaving them highly sensitive to disruptions such as inflation or weak agricultural growth.
A few months ago, corporate tax rates were reduced, which largely benefited the middle class while having little impact on low-income households outside the tax bracket. Now, with the government’s move to rationalise GST, consumers are set to gain significantly.
For this policy to have its intended effect, consumer goods companies are expected to pass on the benefits directly to buyers rather than using it to improve margins. “This is not something which they should look at to fix their business model or increase the gross margin. They should pass this benefit to the consumers,” he said.
He underlined that the scale of benefit could be substantial. “If you were to look at that, the benefit runs into over ₹40,000 crores, and if a large part of that is passed on to the consumers, I wouldn’t be surprised if an equivalent amount of growth happens from a perspective of the consumption going up,” he observed.
According to him, beyond the direct savings, the move is also about rebuilding consumer confidence. Lower GST, coupled with easing inflation, is likely to encourage households, particularly at the bottom of the pyramid, to resume spending more freely on essential and discretionary goods.
In a competitive market environment, he stressed that companies would also be compelled to pass on benefits, as price cuts by rivals would leave little room to hold back.
Overall, he expects GST rationalisation to serve as a key driver for consumption growth in the coming quarters.
