Tier 2 and Tier 3 cities emerge as India’s next consumption engine

MUMBAI: India’s consumption map is getting a new postcode and it no longer ends at the metros. The country’s next wave of consumer growth is increasingly being driven by Tier-2 and Tier-3 cities, where rising incomes, digital adoption and aspirational spending are reshaping the retail landscape, according to a joint report by Kantar and DB Corp.

The report, titled Urban Bharat – India’s Consumption Story, says the affluent population in India’s smaller cities has surged 76 per cent over the past six years, signalling a significant shift in where brands should focus their investments.

Today, nearly one in three urban Indians lives in Tier-2 and Tier-3 cities, making them one of the country’s fastest-growing consumer markets. The report attributes this transformation to higher disposable incomes, a youthful demographic and expanding access to digital services.

A key highlight is the sharp rise in affluent households. The share of NCCS A households in Urban Bharat has increased from 26 per cent to 40 per cent over the past six years, indicating stronger purchasing power and growing demand for premium products across sectors including FMCG, automobiles, education, personal finance and e-commerce.

To help businesses identify emerging markets, the report introduces the Urban Bharat City Opportunity Index, which ranks the top 50 cities expected to drive India’s next phase of consumption growth. The index is designed to support companies in making expansion, investment and marketing decisions based on data rather than intuition.

Young consumers are emerging as another powerful growth driver. According to the report, 33 per cent of Urban Bharat’s population is below the age of 24, with younger households showing increasing willingness to spend on better products, services and experiences.

Digital adoption is accelerating the shift. The report says one in three consumers in these cities now shops online, while digital payments, online banking, investments and e-commerce have become mainstream. This growing digital engagement is encouraging brands to strengthen both online and offline channels to reach consumers more effectively.

Education also continues to command a sizeable share of household budgets. More than 27 per cent of households spend over 10 per cent of their income on education, underscoring the importance placed on long-term financial progress and social mobility.

The findings suggest that India’s consumption story is no longer being written solely in Mumbai, Delhi or Bengaluru. As purchasing power spreads across smaller cities, brands that understand the aspirations and spending habits of Urban Bharat are likely to be best placed to capture the country’s next big consumer opportunity.