India’s middle income segment has been described by our Finance Minister Nirmala Sitaraman as those with income below Rs. 18 lacs per annum ($200 per month) and above the poverty line. This would correspond to approximately 20% (excluding farmers) of rural and urban populations, and cut across religion, caste and gender. However, the representative income in this category is closer to Rs. 6 lacs per annum ($70 per month). Multiple studies have spent more time trying to classify and less on their behavior patterns and how to respond to them.
The classical representative of the Middle Class before the mid-1990s would perhaps meet the following characteristics:
- Educated, graduate or post-graduate for the white collar job holders and high school or at least class 8 for most blue collar jobs. Can speak, read and write at least two, often three languages. Has reasonably good numerical skills. Has a view on most subjects, often preferring talk to action, and tends to be risk averse in general.
- Is reasonably religious, and celebrates festivals with gusto. Births, marriages and deaths tend to be important mandatory social connection events, and complying with norms is a high point in his life. Is highly verbose on patriotic issues, religious issues, and tends to respond emotionally, often displaying herd behavior.
- Is great at compressing lifestyle and saving is a strong inherited habit. Purchase of TV, washing machine, air-conditioners, motor-cycle or entry-level car are important personal milestones. Purchase of a dwelling unit is a lifetime dream, and will spend his entire life paying EMIs for his home. Many carry on living with their parents as the above income makes it nightmarish to buy and pay for a new dwelling unit.
- Is a law abiding citizen, however compliance is negligible when it comes to personal hygiene and road sense.
- Is committed to providing his children the best of education, though the obsession with having a male offspring often overtakes his thinking of capping family size to two children.
- Will religiously listen to news channels and watching TV is a major addiction.
However, post Economic Liberalization that started in the early 1990s, new services segments opened up which created an entirely new set of young entrants. Their behavior and expectations radically different from their predecessors. Let’s trace this evolution:
- The IT and ITES sectors started the gold rush by changing the dynamics of introducing “3-shift working” in the Services space. Demand for engineers and graduates galloped leading to an expansion of engineering colleges to meet the demand.
- Rapid expansion in Consumer Banking driven by the entry of the Private Sector banks. Hired youngsters who were technology friendly, relationship oriented, and had just about adequate communication skills.
- Opening of the Insurance sector and in a decade tripling of the manpower in this space much like Consumer Banking.
- The big change came post 1995 when the Telecom sector opened up, and created a gold rush for middle income youngsters in Sales, Operations, Distribution and handset sales.
- We then had a period of ten years of organic growth, and then post 2010 started the era of Internet Enabled Businesses and E-commerce startups funded by Private Equity which again expanded the entry level market mainly for school dropouts and pass outs, to a lesser extent for graduates, and even lesser for the more qualified in numerical terms.
The new entrants in these sectors have displayed significantly different behavior patterns:
- Are more influenced by Western culture, and fueled the consumption momentum in India.
- Prefer to spend on current consumption rather than worry about saving for the future.
- Attention span on a subject is low, and the need to source entertainment, most often digital, is paramount.
- Still live with parents in most cases, and have succeeded in partially changing parental habits too.
- Interest in religion as an important factor in life is peripheral, often limited to compliance to keep parents happy.
- Are articulate, app friendly, and easily influenced by the last mile effect. Easily impacted by social media.
Now we have a mix of entrants post the 1990s – some in the new economy and plenty in the traditional one. This generation has brought about the most significant change to Indian election outcomes at the Centre and State levels resulting in clear mandates in the last decade. They vote heavily, withhold their opinions and send psephologists on a tailspin, vote like a herd, not influenced by parental opinion, and have compelled political parties to learn to communicate in their medium or face extinction.
Understanding the mental and emotional make-up of most middle income people is important:
- A large proportion are academic underachievers, have dented dreams but high aspirations, and often an inherent underdog mindset.
- They have careers that if they had a choice they would dump, but often stick to due to lack of opportunity, or mobility. Going to work is a chore.
- Moments of happiness in their lives are few and fleeting, and need strong internal motivation to overcome a defeatist environment.
- Compromise tends to become their second nature, as every disappointment in life is to be rationalized.
- They have learnt from childhood to eschew risk and look for safety and continuity, to be content with less.
- Their children are the ones they pin their dreams on, so children’s education, healthcare and safety needs are issues they will leave their comfort zones for and also take up second jobs for.
The Middle Income cohort tends to become a statistical/ economic classification as it cuts across all religions, castes and genders. Since it is politically amorphous, and has not organized itself into a pressure group, even political leaders who have emerged from this segment have not focused on it. As a thumb rule most of India’s politicians who achieved success either came from the wealthy/dominant classes or conversely the poorest of poor – with the exception of Mahatma Gandhi and Dr. Manmohan Singh.
An interesting phenomenon has been the emergence of the political party AAP – perhaps the first to arrive from the Middle Income cohort. They have a relatively young, articulate, educated leadership, mostly self-made. They put together a lethal combination of focusing on issues of 55% of Delhi’s population that lives in the slums, provided them with a middle Income leadership and swept the elections demolishing the Modi-Shah juggernaut in its wake. They delivered emulate-able success in Healthcare and Education, Water and Power distribution. And not surprisingly were re-elected with a thumping majority for a second full term. AAP has the opportunity of awakening and organizing the aspirational needs of their mother Cohort, as others continue to ignore this segment.
Perhaps unwittingly, Arvind Kejriwal has sown the seeds of a complete ignoring of the Middle segment by other political parties. The BJP being quick learners realised that Kejriwal’s AAP theme would always win as poverty overrides religion and caste. Within weeks, the Central Government did a 180 degree course correction and ran some outstanding programs in Financial inclusion by opening over 300 million new bank accounts for those deprived of access to banking, in Housing – 15 million new units delivered, 60 million new gas connections for below poverty line households , unprecedented construction of 90 million Toilets, Hospitalisation insurance for 500 million, Mudra Loans without collateral for nearly 30 million self-employed service providers/traders, making sure that last mile delivery succeeded. The bottom line was that they rode the wave of success in the 2019 election in style. The Middle Income group gave an overwhelming vote to the BJP, hoping that their time would have come now that the Income Cohort below them was taken care of. However, there is a strong sense of anger that they have been taken for granted and let down.
Every political party has paid lip service to this category of the Middle Income group. When demonetization happened they came forward and willingly took the pain on the premise that it would support a cleaner India. When GST came, they supported it silently hoping that it would herald a better future. If in 2019 the PM said that the Nation’s defence overrides not meeting employment generation commitments, they again supported him with the faith that they were supporting an honest, hardworking man, who would empathize with their plight in time. They paid their taxes religiously, paid the GST on their consumption of goods and services without demur, and what was the reward?? A big zero …. and that too in the backdrop of a Rs.1.8 lac crores tax cut for the Corporate sector. Massive NPA write offs for the large and medium sized corporates and no relief for the small borrowers. In fact, in her latest budget the FM signaled that in future deductions given as incentives for savings may be withdrawn. Finally, out of their limited monthly earnings these individuals save to provide a future safety net or meet commitments. And what do they find – successive rate cuts in interest, leading to their Fixed Deposits in banks earning less than 6% per annum. Suddenly they are looking at a bleak future. Do our great RBI Monetary policy members ever think and record how many incremental years of grind, insecurity and despair they consign nearly 275 million people to. The irony is that many of the policy makers and bureaucrats in India owe their origins to the “Middle Class themselves”, but now stamp on its very existence.
Central governments have taken pride in having made annual incomes up to RS. 5 lacs totally tax free. In urban centres the cost of a dwelling unit of 500 SFT would be at least Rs. 25 lacs and could go up to Rs. 50 lacs or higher in the metropolitan cities. The EMI itself would be Rs.25,000 per month at a minimum. So mandatorily both spouses necessarily have to work and one income over 20 years goes towards the repayment of this EMI. Then they save for children’s education, assisting a parent for a sibling wedding, their own kids’ weddings, and saving some for retirement. We as a country have minimal safety nets. It can be a life of drudgery, and this segment desperately needed some morale boosting. Sure we need to take up farmer issues, unorganized labour issues, but can we forget 20% of the country that slogged to lift itself marginally out of poverty. In times of economic crises when there is nothing called job security, they are emotionally battered, can we dump them into ignominy because they have no organized voice. It does not bother us because we have dubbed them as perpetual whiners.
The Covid 19
The lockdown has devastated the Middle Income segment outside those who work for Government or the large organized sector. The self-employed have been crushed as they have no income. They have EMI commitments on assets that funded their existence. Many fear that their businesses may never revive. Small shopkeepers running in lacs may have lost part/bulk of their inventories to rodents/theft/obsolescence and have loans to repay. The wage earner in the unorganized sector has not been paid by most employers who have gone under themselves. Maybe 20-30% of the migrant workforce that had to vacate dwelling units due to inability to pay rent is from this cohort and doing the long march home hundreds of miles away.
For weeks the Middle Income Group looked hopefully at the Finance Minister and hoped she would recognize their existence and their role in the economy. Throughout the six days of the Finance Minister’s detailed Financial package announcements – they waited with anticipation, but their hopes were dashed when they were ignored totally. Eventually a litigant has knocked on the doors of the Supreme Court for equality in law. It is a fair call that all income earners below Rs. 10 lacs p.a. who have housing and vehicle loans should get the same interest subventions as given to agriculturists. These assets are as critical to the sustenance of their livelihoods as crop loans are to farmers. I would sincerely appeal to the government that in the face of the COVID crisis, they should come forward and meet this demand. It will send a very positive message that all citizens matter.
The moot point however will always remain that can the Middle Income Group ever become top of mind for policy planners in India? When will there ever be a white paper on what constitutes a minimum standard of living that every citizen of India deserves, and therefore taxation should be on income above that level? These are difficult questions to answer at a time when the revenues of the government are collapsing
We shall look forward to a timely policy response in this space.
Sanjit Paul Singh,
Managing Partner S&S Associates