Beyond Aspiration: The Middle-Class Battle with Costly Realities in India

Middle Class

Oxford Dictionary: “the social class whose members are neither very rich nor very poor that includes professional and business people”. India's middle class goes beyond just income—it is a blend of social aspirations, financial means, and lifestyle. While the middle-income group is growing, attaining true middle-class status depends on broader socio-economic factors. Understanding these distinctions is essential for shaping effective policies and business strategies that cater to the aspirations and realities of India’s emerging middle class.

Understanding India's "Middle Class": Beyond Income to Social Identity

Defining the "middle class" has consistently challenged scholars, economists, and marketers alike. Unlike the clear-cut boundaries of income levels, “middle class” is a more nuanced concept encompassing not only financial means but also social identity, education, occupation, and lifestyle. It often embodies aspirations, consumption patterns, and access to opportunities, going beyond simple income thresholds.

In recent discourse, the terms "middle income" and "middle class" are frequently used interchangeably, but they hold distinct meanings. While middle income measures a person or household's earnings, middle class encompasses socio-economic status, lifestyle, and access to various life-enhancing amenities. These differences are particularly relevant in India, where these terms impact not just individual identity but also economic growth trajectories.

Defining Middle Income

The middle-income category identifies those whose earnings fall between the lower and upper income tiers, often defined in per capita or household income terms. The World Bank classifies individuals with annual incomes between $1,036 and $12,615 as middle income. In India, this translates to households with annual incomes between ?7.5 lakh and ?15 lakh, a broad bracket that includes a range of lifestyles and financial conditions.

According to the National Statistical Office (NSO), India's per capita income stood at ?1, 27,768 for 2020-21, with middle-income per capita incomes rising by 9.2% from ?1, 77,111 in 2019-20 to ?1, 93,504 in 2020-21. This growth suggests a gradually improving financial condition for middle-income households. Yet, middle income alone doesn’t encapsulate the full range of experiences, aspirations, and lifestyles associated with being "middle class."

Defining the Middle Class

The middle class refers to a social group characterized by certain standards in education, occupation, income, and consumption patterns. While the income range can vary, in India, the middle class is generally defined as households earning between ?6 lakh and ?18 lakh annually. Middle-class individuals often work in white-collar professions, access quality healthcare and education, and aspire to own homes and cars.

This socio-economic group represents a significant driver of India's economic activity, propelling demand across sectors like housing, consumer goods, and financial services. However, it is not solely their income but rather their lifestyle and access to opportunities that distinguish the middle class from lower or upper economic groups.

Middle Income vs. Middle Class: The Core Differences

Although frequently conflated, the middle-income group and middle class are not synonymous. An individual or household may belong to the middle-income group but lack the education, lifestyle, or job stability typically associated with middle-class status. Similarly, someone with middle-class characteristics—education, lifestyle, and social aspirations—might fall outside the middle-income range.

a)????? Income vs. Status: Middle income is a financial bracket, while middle class reflects social and economic standing.

b)????? Lifestyle & Aspirations: Middle-class status often involves higher consumption, education, and quality of life aspirations than simply being in a middle-income bracket.

c)?????? Consumption Patterns: The middle class is characterized by spending on education, healthcare, housing, and leisure, reflecting aspirations for upward mobility and a more stable lifestyle.

According to a Reserve Bank of India (RBI) report, only about 30% of India's middle-income group qualifies as middle class. This gap highlights that while more people are earning higher incomes, socio-economic barriers prevent them from achieving middle-class status.

The Importance of Middle-Class Growth

As India’s middle-income population grows, there remains a need to bridge the gap between middle income and middle class. Policies focusing on affordable healthcare, quality education, stable employment, and improved housing are crucial for supporting this group. The middle class has an outsized impact on the Indian economy, as its spending on goods, services, and investments drives a substantial portion of domestic growth.

Who & How many are Middle Class

India's middle class is a dynamic, rapidly expanding group that plays a vital role in the nation’s economic landscape. Situated socio-economically between the lower and upper classes, this segment is marked by increased spending power, educational attainment, and diverse employment profiles. They fuel consumption across a range of sectors and are instrumental in driving growth in areas like retail, housing, travel, and technology. According to "The Rise of India’s Middle Class," around one in three Indians currently belongs to this income bracket, defined as earning between ?5 lakh and ?30 lakh annually. Notably, projections suggest that by 2047, two out of every three Indians will fall into this category, making them pivotal in India’s future economic trajectory.

Key Characteristics of India's Middle Class:

1.?????? Young and Aspirational: With 65% of the population under 35, India’s middle class is characterized by a youthful demographic with considerable aspirations. This young cohort is primed for consumption, housing upgrades, education, and travel.

2.?????? Exponential Growth: From 1995 to 2021, India’s middle class expanded at an average rate of 6.3% per year. Today, around 31% of India’s population belongs to this group, underscoring their influence in shaping market demand across sectors. Estimates suggest that by 2025, this group could exceed 550 million individuals.

3.?????? Projected Dominance by Mid-Century: By 2047, the middle class is projected to represent 60% of India’s population, reaching around 1 billion people. This demographic shift would position India as a hub for global consumption, with a considerable impact on sectors such as travel, retail, and hospitality.

4.?????? Economic Contributions: The middle class drives substantial consumption, and with India's GDP per capita growing at nearly 10% annually, the spending capacity within this segment is set to expand significantly. Research by Bernstein indicates that for each additional dollar in GDP per capita, travel spending is projected to increase by 3%.

5.?????? Rising Incomes and Discretionary Spending: Middle-class incomes have seen consistent increases, enabling households to allocate more toward discretionary spending. According to PRICE (People Research on India’s Consumer Economy), this segment grew by 6.3% yearly from 1995 to 2021, and is expected to maintain or exceed this rate in the coming years.

6.?????? Projected Expansion: Estimates suggest that by 2031, India’s middle class could encompass 38% of the population, setting the stage for further transformation in consumption trends, economic stability, and wealth generation.

Socio-Economic Impact and Policy Implications:

The projected growth of India’s middle class makes it critical for policymakers to support this demographic through infrastructure improvements, stable economic policies, and enhanced social security measures. Ensuring affordable access to housing, education, and healthcare will be key to sustaining the middle class’s economic resilience. Furthermore, supporting job creation, particularly in urban and semi-urban areas, will reinforce their financial stability, allowing the middle class to continue driving India’s economic growth.

India’s middle class, with its sheer size, purchasing power, and evolving aspirations, represents both a growth engine and a socio-economic stabilizer. Meeting the demands and addressing the challenges of this demographic will be essential for a balanced, inclusive development model for India’s future.

Middle Class-Beyond Income

According to a recent survey, the People Research on India’s Consumer Economy (PRICE) characterizes a middle-class individual as someone earning an annual income between INR 500,000 – 3 million ($6,000 – $36,000). They contribute about 50% of the nation’s total income.?

According to recent study by Home Credit India (HCIN) ?and the latest round of the YouGov-Mint-CPR Millennial Survey, held in July, a significant portion of individuals earning over ?2.5 lakh per month in India identify as "poor" or "lower middle class," highlighting a complex situation where income alone might not accurately define middle class status due to factors like high living costs, debt, and perception of relative wealth within their social circle;?essentially,?being middle class involves having a moderate income level that allows for basic comforts but might not be enough to comfortably afford major luxuries without significant financial?planning.?

India’s middle-class conundrum reveals the complexities of defining this socio-economic segment in a rapidly evolving economy, where income alone often fails to capture the true picture due to rising living costs, debt, and perceptions within social circles. Here’s a breakdown of the nuances around India’s middle class:

Key Observations:

1.?????? Income Disparities and Perceptions: A notable portion of Indians earning over ?2.5 lakh per month consider themselves “poor” or “lower middle class,” pointing to a disconnect between income and middle-class identity due to high costs of living and relative wealth perceptions.

2.?????? Middle-Class Identification across Incomes: According to a recent survey, 88% of urban Indians label themselves as “middle class,” with many self-identifying as such even if their income is well above or below conventional thresholds.

3.?????? Income Range: Generally, middle-class income in India spans from ?5 lakh to ?30 lakh per year, though it varies with factors like family size, city, and lifestyle.

4.?????? Expense Growth: Rising incomes are accompanied by increased expenses, notably in essentials like groceries (26%), rent (21%), and transportation (19%), which significantly impact the spending power of this group.

5.?????? Average Lower-Middle-Class Income and Expenses: The average personal income of lower-middle-class individuals stands at ?33,000 per month, with an average monthly expense of around ?19,000. Primary earners often cover about 80% of household expenses.

6.?????? Spending Patterns by City: Diverse spending behaviors highlight regional differences; for instance, Chennai leads in leisure spending, while Dehradun allocates more toward medical expenses.

Important Insights:

1.?????? Consumption Patterns: Middle-class status is shaped by spending habits, balancing needs versus discretionary expenses, with significant portions directed toward health, education, and day-to-day essentials.

2.?????? Relative Social Perception: A segment of higher earners may self-identify as “lower middle class” due to comparisons with wealthier peers, emphasizing the influence of social benchmarks on self-perception.

3.?????? Gender Roles in Income Contribution: Women make up a substantial portion (42%) of lower-middle-class earners, often contributing significantly to household expenses, illustrating gender dynamics within this class.

Why This Matters:

a)????? Economic Impact: Accurately understanding the spending patterns of India’s middle class is essential for businesses and policymakers, as this segment drives significant consumer spending.

b)????? Social Implications: This self-perception reflects growing concerns about living costs, income inequality, and societal pressures to maintain certain lifestyle standards.

In sum, India’s middle class is defined not just by income but by a blend of expenditure, social comparisons, and lifestyle demands, making it an essential yet complex component of the country’s economic fabric.

Why Is the Indian Middle Class Facing a Cost-of-Living Crisis?

The Indian middle class is navigating an acute cost-of-living crisis driven by both post-pandemic economic strains and global geopolitical events. While this group was already grappling with rising expenses, the Russia-Ukraine conflict intensified inflation, causing essential items like food and fuel to skyrocket. As a result, the purchasing power of middle-class households has significantly diminished, with many struggling to afford daily essentials. Even as retail inflation shows minor dips, it has done little to ease the middle class’s financial pressure, as rising costs for food, fuel, and utilities continue to dominate household budgets.

Consumption Patterns under Pressure

This crisis has visibly impacted consumption habits, as demonstrated by lower sales of consumer goods—even during the festive season, which is typically a high-spending period. Middle-class families have cut down on non-essential purchases to balance their budgets, reflecting an economic pinch that runs counter to upbeat indicators from the stock market and corporate profit statements. While sales of luxury goods have remained steady, mass-market items are witnessing a slowdown, underscoring the widening income inequality and the financial constraints of the middle class.

Key Challenges Facing the Middle Class

Several factors compound the cost-of-living crisis for India’s middle class:

1.?????? Inflation: Persistent inflation is the biggest challenge, significantly impacting the cost of groceries, transportation, utilities, and other essentials.

2.?????? Unemployment and Underemployment: Many middle-class individuals face job insecurity or underemployment, limiting income stability and constraining financial security.

3.?????? High Living Costs: Urban living costs are soaring, making it difficult for middle-class families to afford housing, healthcare, and education.

4.?????? Limited Access to Quality Education and Healthcare: Middle-class families often struggle to access quality education and healthcare due to high costs, which further pressures family budgets and limits social mobility.

5.?????? Restricted Social Mobility: Many in the middle class experience limited upward mobility, partly because the segment is rarely prioritized in welfare schemes.

Potential Solutions for Supporting the Middle Class

To alleviate the burden on the middle class, the government could consider implementing several policies:

1.?????? Improving Affordable Education and Training: Expanding access to quality education and skill development in high-demand fields would equip the middle class with better job opportunities and financial stability.

2.?????? Reducing the Cost of Living: Policies aimed at lowering essential costs—including housing, healthcare, and education—would greatly alleviate financial strain on middle-class families.

3.?????? Enhanced Public Transportation: Offering affordable, reliable public transportation would reduce commute expenses and make accessing work and essential services more manageable.

4.?????? Tax Relief and Financial Incentives: Raising the income tax exemption limit (from ?2.5 lakh to ?5 lakh) and providing tax breaks for middle-class families with dependents could bring substantial financial relief.

5.?????? Affordable Healthcare Initiatives: Developing healthcare schemes specifically for the middle class would reduce out-of-pocket medical expenses, a growing concern for many families.

Why This Matters

The financial stability of India’s middle class is essential for the nation’s economic well-being, as this group represents a significant consumer base. Addressing the cost-of-living crisis is crucial to avoid an economic slowdown, as reduced spending among the middle class could impact growth across various sectors. Furthermore, if income inequality continues to rise, the socio-economic divide could widen, leading to deeper social and economic challenges. Supporting the middle class with targeted policies that reduce financial strain is vital for sustaining India’s economic momentum and fostering equitable growth.

CA Harshad Shah, Mumbai [email protected]