Inflation Shrinking India’s Middle Class

With consumption falling steadily, India must address the shrinking middle class, whose decline poses a significant threat to the nation’s economic prosperity. The Indian middle class (earning USD 20 or more per day) numbered around 99 million pre-COVID. This figure has dwindled to approximately 66 million due to a slimming job market and an abnormal rise in food prices, which are virtually forcing people to spend more on food items rather than other items that are at present being considered non-essential or luxurious.

This fact has even been admitted by the government in the Finance Ministry’s latest monthly assessment of consumer demand, which has noted a slump in the FMCG, automobile, and housing sectors, among others. As a result, pressure is mounting on the government to take urgent steps to restore consumption levels to the pre-COVID period. The inability of the middle class to spend more on optional purchases has already had a big impact on the economic front. During the last fiscal year, Nestle India registered the slowest growth rate in the last eight years, for which the company’s Managing Director (MD) Suresh Narayanan has categorically blamed the ‘shrinking middle class.’ He fumed over the fact that this was happening at a time when premium consumption appeared to be fairly strong. Similar views have been expressed by automobile manufacturers and dealers as well. According to the claim made by the Federation of Automobile Dealers Associations (FADA), inventories in factories and dealerships are at an all-time high, valued at INR 72 crore. Surely, the said sector is struggling to grow even in the post-COVID years, which cannot be termed a good sign for the Indian economy.

To arrest the softening consumption, it is essential to check the retail inflation rate, which has risen to 9.22 percent from 5.66 percent in August. What is astonishing is that the rise has taken place despite a normal monsoon that always helps ease retail prices. Unfortunately, the trend has not been followed in the ongoing fiscal year, and as a result, middle-class people are suffering like never before. The fact that the prices of pulses have gone up by 9.8 percent and the prices of vegetables have gone up by 36 percent in the food basket virtually leaves the middle class with no additional funds to make other purchases. In an effort to change the situation, it’s time to strengthen both procurement and public distribution systems in the country, as it is evident that middlemen are making money by taking advantage of weak monitoring systems. It is simply inexplicable why the prices of food items will go up despite a good harvest. So, despite the steady run of the Indian economy, it will not be wise to ignore the shrinking middle class any more, as that will only ensure lopsided growth, which a democratic nation like India cannot afford. The growth should be all-inclusive to make India truly shine.