Celebrate the influence of affluence: it keeps the economy humming through good times and bad

A visit to a shopping mall shows that there are shoppers at branded outlets like Vero Moda, Uniqlo, M&S, Zara and others who could be running up bills of ₹10,000 or more on each visit.

The number of high-end cars being sold, going by data from the Federation of Automobile Dealers Associations, has risen from around 17,000 units in 2020-21 to over 41,000 in 2025-26.

Newspaper advertisements have real estate developers selling luxury apartments with starting prices of ₹7 crore per unit, often with sundecks and other leisure-related spaces spanning areas that are larger than the entire floor space of ‘affordable’ flats.

India’s wealthy-lifestyle economy has grown significantly, keeping the consumption of premium goods and services ticking. This phenomenon is often cited as part of an inequality debate.

However, its material significance lies in how it contributes to India’s economic growth . If one looks dispassionately at weddings of the elite, with cost outlays of over ₹100 crore at times, there are strong backward linkages with various industries that add to India’s GDP.

Moreover, this class of consumers is not just inflation-proof, but also largely unaffected by business cycles. Or even stock market upheavals.

In recent years, most investor presentations by companies in industries like consumer durables, real estate, hospitality, readymade garments, travel and tourism, etc, have pointed to buoyant consumption of premium products and services.

The common lament is that entry-level products have been selling weakly, with inflation pricing them out of the reach of new users. However, premium segments have kept business top-lines ticking.

The challenge for marketers of products and services aimed at the wealthy is one of saturation.

Multiple cars, mobile phones and residences can become passé. This tends to happen in cycles every four or five years, when consumption plateaus out, requiring a new set of affluent spenders to set off a new cycle. Alternatively, or simultaneously, new products need to be introduced to sustain demand. Producers need to judge levels of affluence and its trajectory before they commit fresh capital to such projects.

The automobile industry exemplifies the need to keep new models rolling out. Marques like Mercedes, Audi, BMW and Porsche need offerings that range from ₹50 lakh to several crore to keep more than just first-time buyers interested.

The SUV concept began as a household’s second of third vehicle. Today, as with high-end watches, luxury marques need to sell an even wider range of vehicles to suit different occasions.

In 2025-26, the luxury segment constituted just 1% of India’s total 4.16 million passenger cars sold. Given that the average price of high-end cars would be about 10 times that of a non-luxury four-wheeler, manufacturers see a lucrative opportunity in running a high-margin, low-volume business.

Further, unlike entry-level vehicles, where discounts have to be given to draw customers, demand for premium cars tends to be price inelastic. This is so of many products that signal prestige and thus have snob value.

The relevant issue from an economic perspective is one of maintaining the pace of demand. For this, it is essential that this class of luxury consumers has a sustained influx of new entrants. India’s wealth bracket, in other words, needs to expand relentlessly.

Is it doing so? Individual tax returns data offers some clues. The number of tax returns filed for income above ₹1 crore rose from 44,078 in 2013-14 to 97,689 in 2018-19 and further to 227,315 in 2023-24. Not only is this a sharp increase, the number of returns filed for income above ₹10 crore has also grown several fold.

Therefore, there is evidence that the number of rich has been increasing, helping support the production plans of companies aiming at luxury buyers. Bank data also gives us a sense of growth at the top of the pyramid. For home loans with more than ₹4 crore outstanding as of end-March 2025, there were almost 20,000 customers; for vehicle loans above ₹1 crore, there were nearly 38,000.

Often, the ‘Veblen effect’ comes into play, where a high price-tag in itself is taken as an indicator of value. This is common in categories where people from less privileged income groups purchase products mostly used by the elite.

This is seen in the markets for mobile phones, clothing, perfumes, hospitality and so on. This is especially prominent in the fashion business, where value is often a matter of perception, labels act as status symbols and fast-changing trends mean old stock must be discarded and discount sales do the job.

The consumption of the affluent is important for the economy. Such spending sets templates for others who aspire to wealthy lifestyles and helps money circulate. What we must not lose sight of, however, is that aggregate demand in an economy is even more vital. For accelerated GDP growth, we need India’s multitudes to spend.

These are the author’s personal views.

The author is chief economist, Bank of Baroda, and author of ‘Corporate Quirks: The Darker Side of the Sun’.