Troubled times ahead for the new govt on economic front

WHOEVER comes to power in New Delhi is going to have to deal with a disgruntled middle class. No, I don’t mean that section of the population that doesn’t make it to the government’s 5 kg of free rice and wheat. I am restricting myself to households that earn at least Rs 1 lakh per month in one of India’s big cities. Frankly, below that, you are unlikely to be able to afford much after paying for your children’s education, parents’ medical bills, rent, electricity and fuel bills, and food.

Estimates suggest that those who fall between the 95th and 96th percentile of income earners make that much money. After that, incomes increase gradually, till you hit the 99.3-99.4th percentile, when your family hits the Rs 2 lakh/month threshold. This gives your family a pretty comfortable life. You can buy clothes from Zara, go to better restaurants, take a home loan and buy a house in a well-maintained, but not too fancy, condominium, buy split ACs and take your family on an occasional holiday to Southeast Asia.

Roughly 15 million households in India fall in this category — those who have a household income of Rs 1-2 lakh a month. These would mostly be salaried professionals and owners of small businesses. A large chunk of them are likely to hold some technical degree, like BTech, MTech or MBA. Their children would also have followed in their footsteps and enrolled themselves for similar professional degrees.

Such people have been in trouble for several years now. Their earnings have barely kept pace with rising prices. In many cases, corporate employers have shrunk the ranks of middle management and replaced that with automation or third-party outsourcing. Accountants, HR executives and administration staff have found tough competition from big aggregators, who provide these services to large offices through a combination of software and onsite services. That has not only reduced job opportunities, but also affected pay hikes.

Now, the children of these professionals are finding it difficult to get good jobs. The case in point is the placement record of IITs this year. The reply to an RTI application filed by IIT alumnus Dheeraj Singh showed that 38 per cent of IIT graduates hadn’t found jobs this year. And some of those who had been placed were being offered just

Rs 50,000 a month. Companies that had turned up to offer jobs at IIT-Kharagpur were willing to pay just

Rs 30,000 a month, less than what an Uber auto driver would earn in Delhi-NCR.

The IIMs — which churn out some of the highest starting pay packages — have had a tough year too. Offers are down 10-15 per cent and median salaries are much lower for even the top-ranked institutes. Anticipating this, IIMs had reached out to their alumni networks to help with placements. Smaller business schools have fared even worse. In many cases, median salaries being offered are between

Rs 40,000 and Rs 50,000, and the top packages haven’t crossed Rs 1,50,000.

These are the crème de la crème of those graduating from formerly lucrative professional courses. Those who opted for liberal arts training are mostly living at home and continuing to add degrees as they wait for decent job offers. Anecdotal evidence shows that most young people are now reconciled to earning less than their parents did.

On the other side, the middle class is having to deal with a much higher rate of price rise than what the official retail inflation numbers suggest. This is because there is a wealth effect at the very top — the top 0.5 per cent of the Indian households, which have done extremely well in the past five years. These extremely affluent people have been able to buy much more than they did before the Covid-19 pandemic, and this is showing up in the increased sales of premium cars and high-end homes.

This has had a rub-off effect on the price of goods and services that the upwardly mobile, aspirational middle class wants to buy, at least occasionally. So, all items of discretionary purchase have become more expensive and have gone out of reach of the middle-class consumer.

This story doesn’t end here. Even among the top 0.5 per cent of the Indians, of roughly 2 million households, half earn less than

Rs 5 lakh a month. Don’t get me wrong. That is a lot of money in the context of a country where an overwhelming majority is poor. But, as you climb up the income ladder over a period of two decades, your expenditure patterns change. You begin to upgrade brands — buy the more expensive shower gel and shampoo, switch to artisanal breads and coffee, spend on imported cheeses and organic salad leaves. You fly business class on holidays and stay in better hotels. In fact, your holiday destinations move from Bangkok to Barcelona.

Even those who earn this kind of big salaries are now finding it tough to keep up with the Joneses. This is partly because only those in corporate C-Suites are getting hefty bonuses and raises, while those right below them are seeing their pay hikes shrink. So, they see their bosses buy Rs 6-crore apartments in the tonier parts of the metros, while they can no longer afford to keep pace with the sudden jump in the prices of premium homes.

This is going to show up in the next couple of years as anger and frustration. Except for the top one million households and roughly three million people, there is bound to be a sense of despondency among the richest Indians.

You might ask why they would matter in a country of 1.4 billion people. That is because they control the public discourse. They chatter at parties and turn up at candlelight marches to protest against unrelated cases of injustice. The media will have to take up their issues to hold on to readers and eyeballs. And suddenly, it will snowball into public discontentment.

The UPA-2 had to deal with such a situation within two years of coming to power. The next government might face the same fate.