Middle class on shaky ground

The average household income has gone below the lowest point of 2019

Middle class on shaky ground

Covid effect: The proportion of the poor rose from 22% in 2019 to 39% in 2020. Even the cream of India’s employees does not feel secure in their jobs. PTI

Aunindyo Chakravarty

Senior Economic Analyst

We have enough evidence to show that the Covid pandemic has left most Indians poorer. Even the recovery that we saw in October last year barely managed to put an average Indian family on a par with where it was two years ago. CMIE’s latest data shows that even in January, when many believed India had defeated the coronavirus, the average household income was below the lowest point of 2019. Pew Research estimates that the number of poor people in India more than doubled last year.

This is likely to be an understatement, since Pew Research made its projections based on income distribution data from 2011. CMIE’s data, analysed by economists from Azim Premji University, shows that income inequality increased in 2020. Their ‘State of Working’ report tells us that labour’s share of GDP dropped from 32.5% in 2019-20 to 27% in the middle of 2020-21. Nearly half of those who had salaried jobs in the formal sector moved into informal jobs.

About 100 million people lost their jobs in the beginning of the pandemic, which was roughly 25% of those who had work in 2019. Even at the end of 2020, 15 million people couldn’t find work. Those who did get employed had to settle for lower pay. CMIE’s data shows that average incomes bounced back in October 2020. But even here inflation took away most of the gains. The report shows that an average worker’s real income dropped by 17% in September-October 2020, compared to the same period a year ago. Self-employed people were the worst hit, but even those with permanent salaried jobs saw a 5% decline in their real ‘inflation-adjusted’ income.

The report says that an additional 230 million people fell below the ‘national minimum wage’ threshold of poverty. In absolute terms that means that the proportion of poor people rose from 22% in 2019 to 39% in 2020. In the middle of all this, India Inc made record profits. By the beginning of this year, the best-placed corporate employees saw a slight improvement in their situation. CMIE’s latest wave of its Consumer Pyramids Household Survey shows that the number of 'company employees’ who work in offices increased from 10 million to 11 million in the first four months of 2021 compared to last year. On the other hand, company employees who work outside offices — factories, construction sites, retail outlets, laboratories, deliveries, running errands — declined from 41 million to 36 million in the same period.

We would probably be right in assuming that a significant proportion of ‘white-collar’ jobs would be concentrated amongst those working from offices. CMIE’s data shows that the number of such ‘office’ workers remained stable throughout 2020 and increased in 2021. Yet, anecdotal evidence and news reports suggest that many such jobs were lost during the peak of the first wave last year. This apparent anomaly can be explained if corporates have used the pandemic to let go of senior high-cost employees, promoting those in the middle to senior positions without a commensurate pay hike, and employing younger people at low salaries to fill vacancies.

Of course, the situation might have changed from April, when the second wave began, when several corporates announced that they were downsizing. One estimate suggests that the total number of white-collar jobs dropped by 24% to less than 14 million between April 2020 and this April. Jobs portals suggest that hirings declined by 15% in April-May compared to the previous two months. A recent report shows a hiring pick-up in the last two weeks of May. This see-saw in white-collar jobs shows that they have become extremely unstable. It is difficult for even the cream of India’s employees to feel secure in their jobs. That also means they will find it difficult to make any big spending decisions.

White-collar employees, along with successful entrepreneurs, account for the bulk of India’s buying classes. They make up less than 5% of India’s population. These 14-15 million households buy cars, air-conditioners, double-door refrigerators, washing machines, microwave ovens, smart TVs and high-end smartphones. They are the ones who eat regularly at restaurants or go on holidays. They spend on high-speed broadband services, DTH and OTT, and shop heavily online. They also invest in mutual funds and take loans to buy homes. Job security is essential to make these expenditure decisions.

If this class loses its consumer confidence, a big part of India’s organised manufacturing and services sector will be hit. Data on consumption decisions suggest that this is already happening. CMIE’s latest CPHS sweep shows that the intention to buy consumer durables dropped sharply in the first four months of 2021, compared to the same period last year. In January-April 2020, roughly 20 lakh households planned to buy a TV set. One year later that had dropped to less than 7 lakh households. Similarly, those who intended to buy refrigerators dropped from 23 lakh households to less than 7 lakh. Those planning to buy washing machines dropped from 30 lakh to just above 3 lakh.

These are clear signs that India’s consuming classes are facing an unprecedented crisis. The difficulty of getting jobs, the low pay if one manages to get work, the long hours resulting from reduced bench strength in every office, and job insecurity, is going to have a long-lasting effect on how an entire generation approaches their economic life. This is especially so because the Covid-induced recession comes on the back of a decade of economic slowdown. About 30% of those employed today have not witnessed the boom period of the early 2000s, and have never experienced a ‘wealth effect’.

Job insecurity and financial uncertainty also have a profound effect on people’s personality. Both breed fear, promote obedience to authority, and suppress innovation. They also create a predisposition towards accepting autocratic behaviour from one’s bosses. In the social sphere, they promote patriarchy, traditionalism and authoritarian politics. This is the ‘long-term effect’ of Covid that we are doomed to suffer for several years to come.

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