Prof M K Bhat
drmkb1963@gmail.com
The growing middle-class in India has become a point of attraction for both local and international companies. It is expected to bring laurels to Indian economy and the Government is visibly committed towards its aspirations and dreams.Middle class drives demand for goods and services which stimulates production and investment.They are also significant source of govt revenue – invest in education, healthcare, foster economic and institutional development and ultimately contribute for social welfare. Indian middle-class income ranges between Rs 5 lakh to 30 lakh per annum at 2020-21 prices. According to People Research on India’s Consumer Economy ICE 360 degree surveys, this group accounts for 40 percent of India’s population in 2025 up from 26 percent in 2016 and is expected to be 60 percent by 2047. This has resulted in the escalation of consumption of: automobile like mid -range cars, smart phones, air conditioners, Televisions , fitness gadgets, affordable and mid-range housing demand has increased, e commerce platforms like flipkart, Amazon Myntara etc have expanded from Tier 2 to tier 3 cities targeting households which are drivers of emerging markets, destination weddings, foreigntours, foreign education and internet etc.
Prime Minister Narendra Modi views the middle class as the foundation of India’s economic transformation, and a key driver of national progress. He has coined the term “neo-middle class” for 250 million people who emerged from poverty in last decade. His Government pins hope on middle income group by extending various Government’s policies with an aim to empower them through tax relief, affordable housing, healthcare and infrastructure development. This group has in the previous century been a catalyst of growth in various countries of the world. The tax concession was extended to this income group by charging no tax up to 12 lakh rupees in the Union budget 2025-26 plus standard deduction of Rs.75,000. It means no direct tax up to 12.75 lakh and indirect tax concession was provided to this class by streamlining the GST. Both of these concessions were provided to enhance the disposable income of people, to increase the demand and thereby economic growth of the country. It is not only tax reforms but the govt initiatives like the Real Estate (Regulation and Development) Act, 2016 (RERA) to ensure transparency in real estate, the SWAMIH fund to complete stressed housing projects, and a general focus on building next-generation infrastructure (highways, railways, etc.) are measures that directly benefit the middle class. Individuals over 70 years of age are benefiting from the Ayushman Bharat scheme, which provides a health cover of Rs 5 lakh per family for hospitalisation.
It is worthwhile to point out here that domestic consumption comprises 57 to 60 percent of our GDP. The consumption pattern of our middle class has undergone phenomenal change in recent years. The middle class has three levels namely, upper middle-income group, middle income group and lower middle-income group. 75 percent of our middle class falls in the category of lower middle-income group.The wide variation of income within India’s middle class, yields a substantial diversity in spending patterns. The lower rungs of the middle class spend much of their income on private healthcare and education, washing machines, T.V sets, FMCG and non-essential consumables and middle-income group consumes assets such as motorbikes and basic household appliances, basic model cars etc. The upper rungs spend a large proportion of their income on specialised healthcare facilities and foreign education, and also on discretionary goods, entertainment, property, deluxe cars, foreign tours, home theatres and personal services. The upper middle class also own luxury assets and things of status.
The middle class is no doubt the power house of the economy but there are certain impediments in its way which restrict it from unleashing its animal spirit, mention can be made of stagnant wages, job restriction due to automation, outsourcing, in equal distribution of income, rising cost of living etc These factors influence their financial health, thereby their overall consumption and have every potential to slow the economic growth of the country.
Wage rate stagnation: 94 percent of Indian workforce works in unorganised sector where wage rates are quite low. The economic survey of 2023-24 noted that corporate profitability was at 15 years high while wage growth lagged significantly posing a risk to consumer demand and overall economic growth. Profits of Nifty 500 companies grew by nearly four times between 2019 -23 compounded annual wage growth rate (CAGR) across six sectors was in the range of 0.8 to 5.4 percent which was below average annual inflation rate of 5.7 percent indicating decline in real wages. The report was made by Industry body FICCI and human resource service company Quess corporation for Government. The low wage rate curtails the purchasing power of workers and influences their demand for goods.
Labour saving: In order to be competitive companies are fast resorting to labour saving technology, outsourcing and artificial intelligence will definitely cut the size of employment further. Marcellus report in Nov 24, 2024 highlighted that clerical and supervisory roles both in office and factories are being automated even without the use of artificial intelligence. The rise in contractual labour, outsourcing has rendered many managerial and supervisory roles as redundant.
Inequal distribution of income: The inequal distribution of income in India is quite clear from the fact that 10 percent of our population earns 58 percent of our national income while as the bottom 50 percent earned just 15 percent in 022-23 as per world inequality report 2022-23. This income inequality conveys a lot about the low purchasing power of the majority and is an impediment in the economic growth of the country. Economic growth becomes meaningless if a few grow and majority remains behind.
Cost of living: It is no doubt that middle class is aspirational and bears high propensity to consume but rising cost of living compels this group to spend more on healthcare, basic education and food. The annual healthcare costs are rising at an alarming rate of 13 to 14 percent outpacing general inflation in the country. Every parent wants to give good education to their wards. In private. schools the fee hike in urban areas has been more than 50percent leading to significant pressure on middle class families. High fee is charged on account of salaries to teachers and infrastructure but what is actually paid to the teachers is no secret for anyone to guess. The food inflation; although under control at present was quite exorbitantly high during 2009-14 e.g. pulses saw 19.6 percent inflation in 2012-2013, and fruits and vegetables experienced 23.1 percent inflation in 2013-2014. All these things have an adverse impact on the purchasing power of middle class.
India has a big population in the middle-income group- more than the total population of various countries. This big population with low purchasing power makes cost the main criteria for the success of any business organisation. It is due to this that low quality goods sell along with quality goods in the market. The low income of Indian middle-class results in their low standard of living compared to their counterparts in West or America.
There is dire need of implementation of wage rate in the unorganised sector simply drafting the minimum wage is not enough and a big respite to the middle class can occur if the medical rates are regulated properly.Three is need of more social security in this group.
The middle class is not only an asset for the economy but being vocal carries political face too in a democracy like India.
(The author is Professor Emeritus (M.A.I.T) Guru Gobind Singh Indraprastha University, Delhi)
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