India inhabits three different economic realities within its borders, India 1, the affluent and digitally empowered elite; India 2, the aspirational middle class caught in stagnation; and India 3, the invisible majority struggling for survival.
The Indus Valley Annual Report 2025, published by Blume Ventures, paints a striking picture of India’s economic landscape, not something we are completely unaware of, but confirming our fears of a deeper divide.
India 1: The wealthy elite driving growth
India1 represents the top 10% of earners, who enjoy access to global markets, financial investments, and premium consumption. They are the biggest beneficiaries of India’s digital public infrastructure, venture capital boom, and policy incentives favouring high-income sectors.
Source: Blume
This 10% of the population is our actual consuming class. Two-third of the share of discretionary spending in India comes from this segment. That means that they can spend on a whim, without a second thought, unlike India 2 who is a reluctant consumer, and needs to be coerced to spend their hard earned money.
However this class is not widening, as much as it is deepening. The number of people in this class is not increasing. Look at our domestic air passenger traffic, which has not grown much after the COVID-19 slowdown. That means it is almost the same number of people being able to afford flights. But there is certainly a rise in luxury real estate and premium goods sales, both of which have been at record highs.
This is the class that has benefited from globalisation, AI-driven business and access to startup capital driving growth in tech and high-value industries. These are the people living in affluent gated communities and are savvy online shoppers; of course at the cost of India 2 and India 3, who provide the cheap labour for them.
If India 1 were another country, it would already be a high income country. At 140 million people, it would be at number 10 globally in population size with a per capita income of US $ 15,000. Which would rank it on 63rd place in per capita income of nations, while the rest of India would be at 140th place.
Source: World Bank/Blume.
India 2: The aspirational yet struggling middle class
If India 1 is equivalent to Mexico in the world, India 2 is Indonesia, says the report.
The emerging aspirant class, heavy consumers yet reluctant payers. Comprising about 300 million people with a per capita income of US $ 3,000, this class includes salaried professionals, small business owners, and skilled workers. Unlike India 1, this group faces stagnant wages, rising costs, and limited social security.
Source: Blume Research.
Consumer spending is what drives India’s GDP, and this middle segment – not really ‘middle’ if one is to look at the exact numbers – the in-between segment’s share of discretionary spending is only one-third.
India’s Household share of savings has dropped from 84% in FY00 to just 61% in FY23, and now India has a much lower savings rate than its Asian peers at 30%, while China is at 44%. Indian’s financial savings have gone down to 5.1% in FY23 from 10.1% in FY00.
Source: Jefferies, Economic Survey, MOSPI, RBI/Blume.
Indians are increasingly relying on credit to finance their lives. There is a rise in small ticket personal loans, or loans from non-banking financial companies and fintechs. Online loaning apps have increased their foothold, typically among the young folks. Also increasing the risk factors, and inviting harassment of private lenders.
Source: Blume.
The vast potential of the middle class, in numbers and skill is lost on the kind of job market we are developing. From high disguised unemployment in agriculture to jobless growth in manufacturing, India’s human capital is being wasted. Reason? India under invests in its human capital.
Our education spending as a percentage of GDP is at 2.7% as of 2023, very low among its peers. No wonder India’s demographic dividend is slipping away. And with the threat of AI, it is quite possible that a lot of low-skill jobs would simply vanish from the market.
Source: CII, Twitter/Paul Novosad featuring the work of Nitin Kumar Bharti and Li Yang/Blume.
As India relies on the service sector for its growth, the loss of jobs to AI is a serious challenge. The service sector constitutes 54% of GDP and employs 31% of the labour force.
If we are not able to up-skill the youth immediately and create more jobs, a large number of youth are going to be struck with low-paying gigs in the quick-commerce industry.
Economy is formalising but at the cost of unorganised sector, which in turn is also taking away a lot of low-end jobs.
Despite big promises of Make in India, India has been underperforming on the manufacturing front, with the share of manufacturing value added to GDP at 12.9% in 2023.
Source: World Bank/Blume.
The report points to an interesting mix of land, labour and capital issues which slow down the manufacturing progress in the country. Low skill levels in India’s workforce mean that even with lower wages, productivity remains low, balancing out any cost advantage.
Industrial land costs in India are 25% higher that of Thailand’s, making manufacturing a capital intensive process. Same goes for lending rates in the country, which are 12-15%, while that of China’s are just 3-5%. Moreover, govt policies are often geared towards big businesses, and after the triple crackdown of demonetisation, the covid pandemic induced lockdown and GST, the unorganised sector, where a bulk of small-scale manufacturing activity takes place, is finding it hard to get back on its feet.
India 3: The Forgotten and Marginalised Majority
In Blume Venture’s consumer stack, if India 1 is Mexico, India 2 is Indonesia, then India 3 is Sub-Saharan Africa. Over 1 billion of the population remains excluded from India’s digital economy, financial growth, and policy priorities.
India 3 represents the daily wage earners, informal sector workers, and rural labourers, the forgotten and the marginalised. And they are definitely not the ideal consumers, with almost no income at their disposal on discretionary goods.
The harsh realities of India 3 are only visible when they die in large numbers in stampedes, in a pandemic, or simply of hunger.
This is the 90% informal workforce of India, which lacks any kind of job security, or health benefits. They are the ones currently powering India’s gig economy, without the fair wages, and labour rights. The access of this population to quality education and healthcare still remains a distant dream, leading to intergenerational poverty.
The much lauded success of India’s tech-based solutions, largely bypass India3. This is the unmonetised segment so far as per the report that aims at the investor community. And so remains muted in the business narrative focussed on understanding consumers’ preferences.
The growing divide between India 1, India 2, and India 3 is not just an economic challenge – it’s a societal risk. India’s economic story cannot be a success if it benefits only India 1 while India 2 struggles and India3 is left behind. Addressing these disparities is not just about economic justice but about ensuring long-term stability, innovation, and sustainable growth. The time to bridge these divides is now.
Kavita Kabeer is a writer and satirist.
