India’s middle class is under enormous stress. A recent report by Pew Research Centre said 2020’s first Covid wave saw India’s middle class shrink from 99 million to 66 million. Obviously, the second wave, which hit the middle class with brute force, will have a more severe impact. Pew’s definition of the middle class is not sacrosanct. Many economists, including Nobel Laureates Abhijit Banerjee and Esther Duflo, have concluded India’s middle class is bigger. They redefine class markers to better align with India’s low per capita income.
But whatever the size of India’s middle – and upper middle – class, the basic story is the same after two waves of Covid and the economic slowdown that preceded them. This vital class is smaller in size, its incomes are lower, its capacity and inclination to consume and save are down. India’s first recession in 40 years has left its middle class, which experienced upward mobility for 30 years since the early 1990s, fearful of the future.
Economic consequences of a shrinking and hurting middle class are manifold. Consumption is just under 60% of GDP. The middle and upper middle classes are aspirational consumers willing to pay for high-value products and services. And it is only when these classes buy more mobile phones, computers, TVs, washing machines, ACs, homes and cars that GoI’s plans to boost local industrial production and housing will succeed, and non-farm employment of low-income classes will rise.
That’s not all. The middle class is where India’s entrepreneurs and professionals come from. From startup whiz kids to district magistrates, from doctors who did Covid duty to telecom engineers who kept networks running, from army officers at Galwan to teachers taking online classes – they are all products of middle class values that emphasise education and striving for a better life.
So, what can be done immediately to shore up the middle class? GoI has to spend, and spend big to kickstart economic activity. The middle class, given its position in the economic ladder and its wide-ranging skill set, will benefit enormously from a sharp and quick rebound in the economy. A fiscally engineered turnaround, combined with consistently high vaccination rates, will bring zest back to a class that must flourish if India is to recover.
This piece appeared as an editorial opinion in the print edition of The Times of India.
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