India’s middle-class gas balloon stops soaring
Who on earth could have imagined even 18 months ago that India’s burgeoning middle class and the new rich would soon stop growing. The cash-rich, consumer-oriented, upwardly-mobile, brand conscious and wealth flaunting Indian middle class have outgrown its tribe anywhere in the emerging world, including that in five times wealthier China, in the last 10 years. But, its growth balloon stopped soaring in 2013.
In fact, India’s super rich were even worse off. The country’s dollar-billionaires are, in fact, poorer by 20-30 per cent at the close of the current year than the assets they proudly held last year, mainly due to the pressure of Rupee devaluation. One of the fastest growing economies in the world, India’s average economic growth of 8.3 per cent until 2011-2012 had collapsed to 4.7 per cent, this year. This made all the difference. Nearly 70 per cent of India’s roughly 250-million-plus owes their wealth to the massive growth of the services sector. They belonged to the communities of traders, stockists and whole-sale agents, franchisees of big brands and chains, transport operators, builders and contractors, private money managers and lenders, real-estate developers and agents, hotel and restaurant owners, tour and travel operators, clearing and forwarding agents, health and education service providers and agents of all hues, to name a few. Their businesses grew a phenomenal rate of 15 to 25 per cent in the previous 10 years. A sudden demand fall has compressed their business and income.
Not surprisingly, global and local research organisations such as Mckinsey, Deutsch Research, National Council for Applied Economic Research and National Sample Survey Organisation have stopped forecasting the future growth prospects of India’s middle class after they banked on its high growth, drawing global attention to the high future potential of the Indian market and its linkage with consumerism. Deutsche Research had earlier estimated that India’s middle class population would reach 600 million by 2030 and its per capita purchasing power would increase significantly from 4.7 per cent to over six per cent of the global share by 2015.According to NCAER, by 2025-2026 the number of middle class households in India is likely to more than double from the 2015-2016 levels to 113.8 million households or 547 million individuals.
The economic slow-down has badly hurt the middle class. Just outside Delhi, partially finished high-rises line the smog-veiled skyline, concrete monuments to the aspirations of the country’s middle class. They are among the hundreds of developments aimed at the rising ranks of home buyers – two and three bedroom units in buildings with air conditioning, washer-dryers and security booths. Estate agents’ billboards tout the ‘VVIP way of life’.
But as Asia’s third-largest economy has slowed, buyers in places such as Ghaziabad have vanished, capital has dried up, and some projects have been slowed, stalled or even abandoned. The story is about the same around all other metros – Mumbai, Kolkata, Chennai, Bangalore and Hyderabad. A decade of rapid growth propelled tens of millions of Indians from poverty into a middle class that now numbers 300 million bringing an extraordinary social transformation in a nation of 1.2 billion. But these days, no one will trust the optimism that once inspired slogans such as ‘India Rising’.
A scam-hit near non-functional government has been indecisive about implementing ready projects calling for a gross investment of over Rs 5,00,000 crore, mainly on account of its strange land acquisition and environment policies. Mischievous politicians and bureaucrats, brewing centre-state tension on political grounds, increasing corruption at all levels of government and judicial interventions are all working together as if to dive Indian economy and society in the reverse gear. Prices for staples have skyrocketed. People are increasingly getting frustrated. The result of the Delhi state election fought by an anti-corruption campaign group, Aam Admi, a first time political contestant, flaunting a satirical brooms as election symbol meant to sweep away the corrupt, reflects the mood of the country’s youth and public, in general.
The Indian middle class, target consumers for many companies, has also stopped swelling under the inflationary pressure which has started eating into their savings and, as a result, the vitals of the economy. High prices of electricity, steep increase in education and healthcare costs, monthly increase in petrol and diesel prices, rising cost of travel in terms of rail and airfares, etc., especially in the last 18 months, have been quite depressing even for the other-wise happy-go-lucky middle class. Interestingly, the middle class that represents about 20 per cent of India’s population currently owns 49 per cent of total number of cars, 25 per cent of TVs, 60 per cent of computers, 65 per cent of ACs, 45 per cent of microwaves and 45.7 per cent of credit cards.
A typical Indian middle class household spends about 50 per cent of the total income on daily expenses while the remaining goes into savings. This means a middle class family has strong purchasing power to spend on durables and other items. However, there is an all round fall in the middle-class consumption. Luxury housing has few takers. Car sales are down. So are a host of other businesses such as hotels, airlines, computer sales, luxury goods, imported home decors, and even cellphones, barring, somewhat strangely though, high cost smartphones which have nearly become a craze in India.
The common talking point among the middle class, which has traditionally less vocal about politics in public, is the 2014 elections and the rise of Aam Aadmi Party, an untested political party representing the common man pledging to help the poor and, in the process, further stifling the growth of the middle class. Many hope that a change in the government at the centre and good governance may improve their fortune. India’s middle class can’t wait any longer for things to get moving.IPA