Strong Domestic Demand: The New Importance

At this time when countries of the world are adopting different strategies to avoid the tariff attacks of US President Donald Trump, India's strong domestic demand is emerging as a big strength for India to counter the attack of Trump's tariffs.

The rapidly growing consumption in the country's consumer markets is a strong weapon for India in the war against Trump's tariffs. According to the India Discretionary Spend Evolution Report released recently on February 27 by Deloitte India and the Retailers Association of India (RAI), India's consumer market is the fastest-growing in the world. The private consumption in India's consumer market was Rs 87 lakh crore in the year 2013. The value of the global market, which was Rs 183 lakh crore in 2024, is set to more than double to Rs 183 lakh crore in 2024. The report says that India will become the third-largest consumer market in the world in 2026 due to rapidly increasing consumption.

Undoubtedly, the middle class of the country is giving new economic strength to the consumer market of the country. The number of middle-class people in India has increased rapidly due to high growth rate and high growth rate of urbanization along with economic reforms. According to a recently published document titled "The Rise of Middle Class India," the number of middle-class people in India has increased rapidly to about 43 crores in 2020-21, and this number is estimated to reach 102 crores by 2047. This class is defined as families with an annual income of Rs 5 lakh to 30 lakhs.

According to a report by research firm Kantar, the number of Indians earning more than $10,000 annually in India will triple by 2030. It was about 6 crore in 2024, which will be 16.5 crores by 2030.

Certainly, amid growing fears of a new tariff war, India's middle class has become the new power of the Indian economy. Due to the growing purchasing power in the hands of India's middle class and the dreams of consumption and prosperity seen in the eyes of Gen Z and millennials, many countries of the world are eager to increase economic and business relations with India. The world's big companies are knocking on the multi-faceted consumer market of India with their renowned brands and new strategies. Companies related to global retail services are rapidly expanding in India. Big brands from technology to apparel, beauty, fashion, and entertainment sectors are now entering Tier-2 cities through the big metros of India and have moved toward Tier-3 cities.

It is no small matter that despite all the global challenges, India remains the fastest-growing economy in the world due to the strength of domestic demand. In the last 10 years, the rate of increase in consumption has been the highest in India. In the October-December quarter of the current financial year 2024-25, the growth rate of the Indian economy has been 6.2 percent. This growth rate of India is higher than many developed and developing countries like China, America, Indonesia, and Brazil. It is noteworthy that recently on February 27, the World Bank in its "Global Economic Prospects" report has described India's economy as the fastest-growing large economy in the world in view of investment and consumption.

World Bank Country Director Auguste Tano Koume said that if anyone is worried about India's economic data, then we would like to say not to worry. India is a shining star in the global economy. Increasing consumption and growing investments due to the policies of the Indian Government are strengthening the Indian economy.

The Budget for the financial year 2025-26, which will come into effect from April 1, 2025, certainly seems to be increasing the purchasing power of taxpayers, investors, and the middle class. The Finance Minister's efforts to increase expenditure and savings by reducing taxes and simplifying the tax structure have been seen in this budget. With a strong financial fist, the Finance Minister has benefited the taxpayers with unprecedented reliefs under the provisions of the new tax regime of Income Tax. There is a big change in the income tax slab under the new tax regime, so that more and more taxpayers are inspired to adopt it. The Finance Minister announced changes in the tax slabs and additional rebates in the new tax regime under the new budget, under which no income tax will have to be paid on income up to Rs 12 lakh.

Certainly, with this budget, the government has moved forward on the path of reviving the pace of economic growth by solving the long-pending economic financial grievances of the middle class and creating a good economic cycle with appropriate tax relief. Certainly, reducing the tax burden on the middle class will increase consumption. This will increase GST collection and increase the base of those with taxable income.

India is facing rapid economic and business turmoil due to the fear of Trump's tariff war. In the face of this change in the world, we too must put India's economic and business interests first and foremost. Global trade is now being re-established with a new face. The World Trade Organisation (WTO) is no longer the main pillar, and non-discriminatory duties under the Most Favoured Nation (MFN) status are being abolished. Every country wants special treatment. We must follow the same path and rely on the country's strong domestic demand and, based on the shining purchasing power of the middle class, economic and business relations with different countries of the world will have to be given a new direction.

Undoubtedly, amid the new challenges of Trump's tariffs, Indian policymakers will have to move forward strategically based on the strength of strong domestic demand while constantly evaluating the direct and indirect impacts of the Trump administration's policies on India. As India is soon going to become the third-largest economy in the world and the target is to achieve a growth rate of 7.8 percent for developed India by 2047, India will have to move forward in a planned manner to counter the tariff blow from the US with a strategy to rapidly increase consumption in the Indian market.