Who shrank India’s middle class?

Slowing consumption

It is significant the government has finally given up its ostrich-like posture, and is now conceding that indeed there is a crisis of falling consumption. The Ministry of Finance’s latest monthly review acknowledged consumer demand was softening. It noted the sharp slowdown in FMCG sales and said there had been a 2.3 per cent contraction in automobile sales. The decline in housing sales and launches in the second quarter also finds mention.

Most of these FMCG and auto companies and realtors selling homes have hinged their business plans on this ephemeral ‘middle-class’, defined as those with substantial disposable income and a huge appetite to spend on the good things of life. Accounting and management firms, using questionable ‘research’, first bandied rosy numbers in the early, heady days of liberalization. The magical figure then touted was a middle-class 450-million strong that would drive growth and consumption in India.

When the dust settled, everyone realized the 450-million middle class was wishful thinking. Two decades later, the more realistic figure is about one-fifth the earlier estimate. The US-based Pew Research Centre projected the pre-Covid strength of the Indian ‘middle class – defined as those earning between USD 10-USD 20 a day or Rs 25,000-Rs 50,000 a month – at about 99 million.

How fragile the middle class’s income and consumption is can be gauged from the Pew Research’s data that said about one-third of this segment fell out of the ‘middle class’ during the Covid freeze, effectively reducing it to about 66 million. Those numbers that fell out have probably been restored and the ‘middle class’ is now over 100 million strong.

But the estimates continue to differ wildly. Ridham Desai, MD of Morgan Stanley says: “…a hundred million new households, which is 450 million people, which exceeds the population of US and the whole of Europe, are becoming middle class in the next 10 years.”

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