COVID-19 pushes middle class towards poverty in India

Number of the poor (people earning ~Rs. 150 or less per day) is estimated to have increased by 75 million

Ground Report | New Delhi: In March this year, US-based "fact tank" Pew Research Center released a report highlighting India's shrinking middle class and its effect on the Indian economy. It also mentioned relatively smaller changes in the Chinese economy due to the pandemic. The report said 32 million fell out of the middle-income group (people earning ~Rs. 700-1400 per day) due to the pandemic.

Moreover, the number of the poor (people earning ~Rs. 150 or less per day) is estimated to have increased by 75 million. These numbers together account for a 60% global decrease in the middle-class and a 60% increase in global poverty.

The shrinking of the middle class is bad news for the Indian economy. Not only does the middle class make up 79% of the country's total taxpayer base, but it also contributes to 70% of the total consumer spending. In addition, since the accumulation of the middle-class value of human capital and savings, their investment in education and the economy, in general, is high.

Most of India's entrepreneurs and professionals belong to the middle class as well. They play a crucial role in social development via healthcare education etc. while also contributing to the economy.

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Other than socio-economic contributions, this class arguably also has high political engagement. It has more incentive than the higher-income group and more capacity than the lower-income tier to hold public officials accountable. They are also at the forefront of demanding the proper implementation of public welfare schemes.

The health of our democratic institutions relies heavily on the presence of a big middle-class demographic. Discontent amongst this class often leads to a rise in populism and protectionism. Pre-pandemic estimates anticipated the Indian middle class to comprise 99 million people in 2020. By March 2021, this estimate fell by a third to 66 million people. Meanwhile, the estimated number of poor in the country is 134 million people.

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The government will have to take measures ranging from restructuring the taxation system to increasing government spending to kickstart the economy to addressing unemployment and skill development.

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