Indranil Banerjie | Troubled Times Loom For The Great Indian Middle Class?

Not so long ago, the big debate about India’s middle class was its size and how fast it was growing. Today, the discourse has shifted to whether or not this tier of Indian society is in crisis. Many analysts aver that it is indeed in deep trouble while others, several economists among them, dismiss such a scenario, claiming that the Indian middle class is growing and doing well. The debate has reached a crescendo without achieving any clarity.

Pessimists point to the vast and growing unemployment among all sections of society, a claim buttressed by anecdotal accounts of graduates seeking jobs of sweepers and peons. Household savings too have hit a historic low -- plummeting to just 5.1 per cent of GDP in 2023, according to the RBI -- while credit card spending by the middle class have hit a high, and so have payment defaults at the family level, which traditionally was a rarity in Indian society.

Personal loans have surged to more than Rs 55 lakh crores as of September 2024, which works out to a 13.7 per cent year-on-year increase. The RBI has voiced concern over consistently rising household debt, which rose to 41 per cent of GDP in the financial year 2023-24 from 37.9 per cent in the previous year. Significantly, the biggest rise has been in non-housing debt.

Among the doomsayers is Saurabh Mukherjea, founder of Marcellus Investment Managers, who claims as per income-tax data, “middle class earnings have stagnated at around 10 and a half lakhs per year for the last 10 years”. This, in real terms, means incomes have halved, leading to increased debt as people struggle to maintain their desired living standards, he argues.

The optimists, on the other hand, believe that the dismal picture of India’s middle class is not accurate. Among them is economist Rajesh Shukla, who points out that “the middle class -- defined as households with annual disposable incomes ranging from Rs 5 lakhs to Rs 30 lakhs (at 2020-21 prices) -- continues expanding. Research from PRICE’s ICE 360 surveys shows that this group accounted for 40 per cent of India’s population in 2025, up from 26 per cent in 2016”.

Shukla and others also point to the expanding market for consumer durables, automobiles and houses during the last decade. In aggregate, the middle class is indeed growing.

So, who is right? The answer perhaps lies in the composition of the middle class, which today is far from being homogenous and comprises at least three distinct layers. At the bottom is the large and continually growing segment of aspiring households entering the middle-class berth, while at the top is the affluent upper middle class which today constitute the “premium class” and is responsible for the so-called “premiumisation” of the Indian economy. Sandwiched between these two happy segments is the traditional middle class, which feels hammered and for whom life is worse and not better than before.

For this class, particularly young households, the burden of children’s education, health care and housing has risen exponentially. They are also the most highly taxed in relative terms and receive few government sops. They toil in increasingly uncertain circumstances in cities that are barely liveable and with every passing day watch their ability to save for old age progressively shrivel.

One measure of traditional middle-class desperation is the numbers of their young seeking to emigrate. In 2024, Indians were the largest emigrant group in the world, with 18.5 million fleeing the country, a large chunk of them middle class students seeking to settle abroad; in contrast, China sent 11.7 million emigrants, Mexico 11.6 million, Ukraine 9.8 million, and the Russian Federation 9.1 million.

In his book Rise of the Global Middle Class, author Homi Kharas writes: “We are adding 110 to 115 million people into the middle class each year, despite all the difficulties the global economy is presenting. But that’s what’s powering the world economy forward.”

But the economy is not the sole or even the most important aspect of national life or well-being. The character and the collective consciousness of a nation is determined not by its purchasing power but by values, institutions and ideas generated by its people.

The Soviet Union, for instance, was a highly industrialised society producing modern aircraft, physicists, nuclear and space technologies. Yet, it was a society without a democratic soul, an unhappy “gulag” where individual aspirations or liberties meant little and where only party apparatchiks enjoyed total power and every luxury.

The traditional Indian middle class played a pivotal role during the freedom struggle and the early post-Independence decades. In the last few decades, however, it seems to have retracted politically. One reason of course is the incessant need to keep afloat in an increasingly challenging and competitive economic environment.

The other is the current dominance of proletariat, peasant and criminal elements in national political life. In effect, the middle class has effectively been squeezed out of national affairs.

This is in sharp contrast to the historical experience of the countries in the West as well as in emerging market success stories such as China, where despite the legacy of Maoism, power is concentrated in the hands of the post-revolution middle class. President Xi Jinping, for instance, is second generation middle class and an engineer by training.

A paper by the German Development Institute (Furness, Mark, Imme Scholz, Alejandro Guarín) on the world’s rising middle class had predicted more than a decade ago that the new middle classes of the developing world would soon dwarf the “old” ones. The question, therefore, was: “In the West, the middle classes are seen as a huge part of the success story of the post-war years. They are considered fundamental for sustained economic growth, democracy and good political institutions. If this happens in developing countries, then it will be good news. But will it?”

This is a question that needs to be addressed in this country as well. Swami Vivekananda believed the middle class to be a pivotal stratum of society and a potential engine of beneficial social change. The middle class, if properly educated, he felt, could bring about the critically important aim of bridging the gap between the pauperised and the privileged, as well as foster justice in the country.

But as of now, with its back to the wall, the bulk of the traditional Indian middle class is in no position to play a breakout role. Forget leadership, political or intellectual, its sole obsession is finding ways of escape.