Middle Goes To Top
OPINION | The Times of India
A stronger and more secure middle class is crucial for continuing India’s upward trajectory. A massive shift towards a middle-class society is already happening in India. Nearly 47% of the Indian population is expected to join the middle class ranks by 2030. It is not an exaggeration to say that future growth will depend on the rising middle class, and the evolution of the middle class will depend on growth.
The Middle-Class category, comprising 432 million people whose annual household income is in the Rs 5 lakh to Rs 30 lakh range has a total household income of Rs 84,120 billion, spending of Rs 62,223 billion, and savings of Rs 11,774 billion in 2020-21. As a group, the household income is more than twice the earnings of the Rich category (56 million people, earning at the average annual rate of more than Rs 30 lakh) pegged at Rs 38,239 billion. In spending terms, the middle class spends a little less than three times that of the Rich category. It is thus evident that the Middle-Class group is the country’s biggest contributor in terms of income (50 percent), expenditure (48 percent), and savings (52 percent).
In terms of expenditure, Middle-Class households spend eight times that of Destitute households while the Rich households’ expenditure is nearly 25 times that of Destitute households.
On the flip side, this segment of the population has also been the hardest hit by the pandemic, rising costs of living and mass layoffs. These factors have led to declining household private consumption and savings and unless addressed could further lead to disruption of economic growth in FY 2024.
Consider some figures from our pan India surveys (PRICE’s ICE 360 survey, 2021). In response to a question: ‘Compared to Pre-COVID period (Before March 2020), what is the current level of your household income? nearly one-fourth of the Indian middle-class households that were surveyed, reported that their incomes were lower or no income than pre-Covid income levels. Further, loss of employment or salary cuts were the primary reasons (34% and 28% respectively) for the lower/no income status. Loss of business and lower income from business were also significant contributors.
On further probing, it was found that for nearly 38% of households that had reported lower/no income, their earnings had dropped to half of what they earned during pre-Covid times. And 12% of households reported that their incomes had declined by anything between 50%-75%. This is a clear indication of the enormous financial stress that a large section of middle-class households have been going through in recent times.
In the response to other important questions: What worries you and your family the most? the issue that emerged as the top concern for 61% middle class households was: job security. Nearly 51% mentioned that regular or continuous income was a concern. Health, rising inflation and children’s education emerged as the other main worrying factors.
Not surprisingly, Finance Minister Nirmala Sitharaman recently remarked that she “understands the pressures on the middle class”. The government’s announcement in the first budget of Amrit Kaal of zero tax for those earning upto Rs 7 lakhs in the Budget 2023 will come as a huge relief for the middle class. Further, more flexible tax slabs and reduction in surcharge rate is expected to enhance the disposable income of middle-class households, reducing their burden and giving a boost to consumption, thereby boosting the economy after the pandemic-induced slowdown over the last couple of years. Higher deductions on housing loans and healthcare expenses under the old income tax regime are also expected to provide some measure of relief.
The proposal to raise the limit for tax exemption on leave encashment on the retirement of non-government salaried employees is another announcement expected to cheer the embattled middle class.
A massive shift towards a middle-class society is already happening in India. India's new middle class of around 715 million people by 2030 are a major part of India’s growth story, made their demands felt, and will become the most visible sign of a progressing economy. The expanding middle class will drive further the Indian consumer economy by demanding more goods, better services, housing, health, education, shopping malls, and other infrastructure, and can afford to take an annual vacation, boosting domestic tourism. In short, most examples of rapid sustained economic growth coincide with the development and expansion of the middle class.