In a year of “yes, no, maybe” both the Reserve Bank and the Finance Ministry now agree that the country has a growth problem. If they had been listening to what consumer goods companies have been saying for a while, they may have reached that conclusion sooner.
India’s festive season was a damp squib with paltry volume growth and barely any price growth at all. Fast moving consumer goods (FMCG) companies have been pointing to a clear and consistent tightening in the non-premium urban market. And even as some may argue there’s a recovery in rural areas, the truth is almost three-fourths of FMCG sales come from urban markets. Consumer goods companies could swap notes with India’s automobile manufacturers, where 2024 has been clearly disappointing in terms of sales for entry-level passenger vehicles and for larger commercial vehicles. The saving grace is once again the rural sector where two-wheelers saw some uptick.
This soggy demand environment showed up in India’s most recent growth numbers where we saw a seven-quarter slump of 5.4 per cent, well below the Reserve Bank’s estimates.
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All of which points to the biggest loser of the year: India’s middle class.
Who is this “middle class” though, and why should the government care? A recent report by market researcher Kantar found that the share of socio-economic classes A and B, or the affluent consumers, has jumped to over 45 and 30 per cent each in 2024, while the share of socio-economic classes C, D, and E defined as middle class and lower middle-class consumers, has shrunk to 40.1 per cent in 2024. In other words, affluent households have surged by 86 per cent in 2024 compared to 2019, while lower and lower-middle-class households have declined by 25 percent compared to five years ago.
Whatever the Reserve Bank may believe its rate action has achieved, inflation continues to inflict lethal damage across households. Ranging between an uncomfortably high 9 to 11 per cent, by October retail inflation came in at a 14-month high of 6.21 per cent, while vegetable inflation was at a searing 57-month high of 42.2 per cent. The problem is it isn’t just vegetables; edible oils and pulses, beverages, cereals—it is all rising.
What isn’t increasing in tandem for the middle class is wages. Listed companies are now reporting wage growth in the low single digits, and wider research indicates there is a clear slip in the quality of jobs available. The proportion of self-employed workers in India’s workforce rose to over 57.7 per cent in 2023-24 from just under 52 per cent in 2018-19. While real wages have barely moved over the last five years for India as a whole, in States such as Haryana and Uttar Pradesh, they have contracted. Bihar, a State that will soon have an election now has the highest share of informal jobs within the non-agriculture sector in the country, essentially indicating low-end roles where there are no social security benefits and no wage guarantees. National Statistical Office (NSO) data for the unincorporated sector also shows fresh job creation slowed down in 2023-24.
For the government, of course, there is the matter of acknowledging that there is a jobs crisis and that solutions, thus far, have not worked. Apprenticeship programmes, training subsidies for companies, the “Make in India” campaign, corporate tax cuts, and labour law reforms are yet to take off. None of these initiatives have proved to be the panacea the government has hoped they would be.
Implications for the middle class
For the middle class, as we step back and assess the economic landscape, some key metrics are clearly off-colour. Demand has registered a sizeable knock, which is why consumer spending is clearly poor, even as the cost of living continues to rise. Net financial liabilities for households in India are now higher than their assets. And while there are no palpable signs of stress in the system yet, it is clear that rising housing costs are breaking the backs of middle-class homes, even as wages—in cases where there are regular jobs in place, have barely moved.
In other words, no jobs, high costs and barely any wage increases. 2024 has been the year where many in India have hardly been able to catch a break.
Many of these concerns should have been front and centre, and on the minds of voters as they cast their votes for Central and State elections. Yet, at first glance, it seems like these economic hardships have not been pivotal in voting decisions. Fed on a healthy diet of religious fervour and nationalism on the one hand and small-sized cash schemes on the other, India’s middle class has chosen what it sees as a stable, yet economically ineffective government. It is no wonder that the ruling government will find itself tied to the “benefits and schemes” model with every successive State election because those money transfers, as meagre as they may seem, present the only lifeline for large parts of India’s population.
It is no one’s case that India’s middle class can be shepherded into a single category and dismissed as being naïve or opportunistic. It is however true, that we still do not fully comprehend the massive damage inflicted on a majority of India’s households in the aftermath of demonetisation and the COVID pandemic. The gaping holes that emerged from those two economic shocks left irreparable financial losses in their wake, with many middle and lower-middle-class households now holding on by their fingernails.
Election speech after election speech has played into that reality; hate speech fuels the mind and cash support feeds the home. The irony is that some of the relative strength seen in rural India is thanks to the employment safety net that was in place post-pandemic in the form of the rural employment guarantee scheme, the National Rural Employment Guarantee Act (NREGA). It is equally true that job prospects in rural India have always been extremely uncertain, with well more than half of the population making a living from agriculture.
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The year 2024 also closes with the loss of one of India’s greatest economic thinkers and political leaders, the former Prime Minister Manmohan Singh: the man who implemented that visionary rural employment scheme and the man who ushered in liberalisation and transformed how India’s middle class consumed goods and services. If ever there was a time for us to heed his words, it is now. As Singh said “Unity and secularism will be the motto of the government. We can’t afford divisive polity in India.” It is true. There is only so far divisive politics will take a nation, economically, and socially.
In the post-pandemic era, there were fevered arguments around what alphabet a recovery in the economy would resemble; a prolonged struggle at the bottom with a U-shaped pick-up, a sharp and swift V or a “Nike swoosh” characterised by a steep drop and a gradual recovery. In the end, it was clear India had emerged with a “K” shaped recovery marked by long-term unemployment among people in the lowest income groups, deepening wealth inequality and growing corporate monopolies at the other end.
What does it all mean for the next year? Predictions often count for nothing, but time is now running out for those in the government who are serious about attending to this deep economic cleft. We need to start thinking urgently about how long a band-aid approach will work for the largest swathe of India’s population.
In Lewis Carroll’s classic Alice’s Adventures In Wonderland Alice asked the cheshire cat, who was sitting on a tree, “What road do I take?” “Where do you want to go?“ asked the cat. “I don’t know,” answered Alice. “Then,” said the cat, “it really doesn’t matter, does it?”
Mitali Mukherjee is Director of the Journalist Programmes at the Reuters Institute for the Study of Journalism, University of Oxford. She is a political economy journalist with more than two decades of experience in TV, print and digital journalism. Mitali has co-founded two start-ups that focussed on civil society and financial literacy and her key areas of interest are gender and climate change.
