The Indian economy, often lauded as one of the fastest-growing in the world, is currently grappling with an alarming phenomenon—the ‘missing middle class’. Consumer goods companies, a bellwether for middle-class prosperity, have reported muted revenue growth and stagnant or declining volumes for several consecutive quarters. This troubling trend underscores the economic challenges facing a segment that has historically driven the country’s consumption-led growth.
A Sector in Crisis
Nestlé India’s chief recently highlighted the ‘missing middle class’ syndrome, reflecting a crisis many companies are grappling with. Asian Paints’ managing director echoed similar concerns earlier this year, pointing out that robust GDP growth figures were not translating into increased sales for the paint sector. Weak wage growth and muted consumption have been cited as the primary culprits.
Government data further substantiates this distress. Private consumption grew by only 4.4% in 2023-24, with the 7.5% growth in the April-June 2024 quarter largely attributed to a low base effect. Early indicators suggest the September quarter may witness another slowdown, painting a grim picture for the future.
Inflation: The Silent Adversary
The muted growth in the consumer goods sector can largely be traced back to stubborn food inflation, which reached 9.24% in September 2024. Over the past year, food inflation has averaged 8.11%, significantly eroding the purchasing power of middle-class households. Despite the Reserve Bank of India’s inflation targeting efforts, high inflation remains a persistent challenge.
Even traditionally resilient sectors like automobiles, which cater to relatively less price-sensitive consumers, are beginning to feel the heat. This ripple effect across industries signals the depth of economic distress among middle-class consumers.
Wage Growth and Its Ripple Effects
A recent SBI Research report revealed a shift in the annual income range of India’s middle class, from Rs 1.5-5 lakh to Rs 2.5-10 lakh over the past decade. However, this increase has been offset by average inflation of 5.5% during the same period. For instance, an individual earning Rs 5 lakh in 2013-14 would need to earn Rs 8.6 lakh in 2023-24 to maintain the same standard of living.
The past decade has been fraught with challenges that have hindered wage growth. An economic slowdown from 2016-17 to 2019-20, followed by the COVID-19 pandemic, disrupted income streams and stifled economic momentum. These factors, combined with high inflation, have pushed household savings to a five-year low of 18.4% of GDP in 2022-23.
The Broader Implications
The middle class has long been the backbone of India’s economic engine, driving demand across sectors. However, their current financial strain could have far-reaching implications. A constrained middle class means reduced discretionary spending, which, in turn, hampers growth in key sectors like consumer goods, automobiles, and housing.
Addressing this crisis requires targeted policy interventions. Controlling inflation, fostering wage growth, and boosting household savings should be top priorities for policymakers. Additionally, measures to improve job security and enhance skill development could play a pivotal role in revitalizing the middle class.
Conclusion
India’s middle class is at a crossroads, battling an economic distress that threatens to derail the country’s growth story. While the numbers may be sugar-coated in official reports, the reality is hard to ignore. Without urgent action, the ‘missing middle class’ could become a long-term structural issue, undermining the foundations of India’s economy. Policymakers, businesses, and civil society must come together to address this pressing challenge and restore the financial stability of India’s middle class.
