India is set to become the third largest consumer economy by 2025, trailing only the US and China, fuelled by an increase in consumption levels, changes in consumer behaviour and spending patterns, according to a report released by consulting firm The Boston Consulting Group.

Consumption across the country is expected to almost triple over the next decade from the current $1.4 trillion to $4 trillion, according to the report titled The New Indian: The Many Facets of a Changing Consumer. India is now the sixth largest consumer economy, after the US, China, Japan, the UK and Germany.

The report is based on a survey of 10,000 consumers from 30 locations across the country conducted by BCG’s Center for Customer Insight.

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“Rising affluence is the biggest driver of increasing consumption. The two consumer categories—elite and affluent—will become the largest combined segment by 2025, accounting for 40% of the consumption compared with 27% in 2016," it said.

The annual gross household income of the elite category is recorded at above $30,800 and that of the affluent category at between $15,400 and $30,800.

The growing internet penetration in India is also expected to push consumer spending. According to the report, digitally influenced shopping is expected to see a tenfold rise from the current $45-50 billion a year to $500-550 billion by 2025 and is projected to account for 30-35% of all retail sales.

“Already, a rising number of consumers in all segments are using the internet as their first port of call in framing and driving their purchase decisions. Our research found that about 70% of those who have access to the internet go online to make informed purchase decisions. As consumers get more comfortable with digital capabilities, their usage patterns exhibit growth that belies age and other demographic variables," Kanika Sanghi, principal at BCG and co-author of the report, said in a statement.

The report also highlighted the rising appeal of Indian goods among Indian consumers. “Indian consumers are exhibiting increased curiosity and excitement over exploring local roots. They are interested, for example, in natural products in personal care, local flavours in packaged food, and hand woven fabrics in clothing," the report said.

“A set of emerging social trends could reshape consumption patterns significantly. These include more and better educated women taking their rightful place in society, greater pride in being Indian, and increasing time compression, each of which will drive exponential growth in various categories differently," Abheek Singhi, senior partner at BCG and co-author of the report, said in a statement.

Additionally, the emerging cities across the country (those with a population of less than 1 million) are projected to constitute a third of total consumer spending by 2025. “Fueled by rising affluence, expenditures in these cities are rising by nearly 14% a year, while consumer spending in India’s biggest cities is increasing at about 12% a year. We expect the emerging cities to see the highest growth in the number of elite and affluent households through 2025," the report added.

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