Economic Squeeze on India’s Middle Class

India’s middle class is encountering a significant economic challenge, with incomes remaining mostly unchanged over the past ten years, while consumption levels have soared. Saurabh Mukerjea, the Founder and Chief Investment Officer of Marcellus, highlights that individuals earning between ₹5 lakh and ₹1 crore annually have experienced negligible real income growth during this period, compounded by inflation nearly halving their purchasing power.

In contrast, both lower-income and ultra-wealthy segments have seen increases in their earnings, further exacerbating income inequality within the country. The pressing threats of artificial intelligence (AI) and automation to job security, combined with a surge in consumer credit encouraging spending, are raising alarms about economic continuity and stability.

In spite of stagnant incomes, there’s been an unprecedented spike in spending at airports, shopping centres, and online platforms over the last five years. This phenomenon is largely attributed to a significant rise in loans and the overall expansion of credit.

Mukerjea articulated in a conversation with Raj Shamani that the surge in consumption can be traced back to loans. He remarked that Indians have resorted to borrowing extensively to uphold their lifestyles.

However, the potential threat posed by AI and automation to job security raises a crucial question: who will be responsible for repaying these loans?

Mukerjea cautions that the rampant integration of AI across various sectors will likely result in job redundancies, a fact that companies often refrain from admitting explicitly.

He observed that numerous CEOs discuss the anticipated utilisation of AI but seldom mention the associated workforce reductions. It’s evident that the replacement of human roles by AI will result in job losses.

This evolving landscape is inducing concern regarding the future of employment in India, as corporations heavily invest in automation with the intention of reducing costs and enhancing efficiency.

Politicians, according to Mukerjea, are increasingly directing their attention towards the lower-income demographic, as this group constitutes the largest voting base. The implementation of Direct Benefit Transfers (DBT) through the Jan Dhan-Aadhaar-Mobile (JAM) infrastructure has streamlined targeted financial assistance, enabling governments to garner electoral support more effectively.

Mukerjea noted that intensive vote bank politics are at play, with direct cash transfers being highly focused, thereby allowing governments to prioritise lower-income sections over the struggling middle class.

While the middle class faces these challenges, the ultra-rich cohort, classified as those earning above ₹1 crore per annum, has seen a remarkable seven-fold increase in the last decade, as per income tax data.

Mukerjea commented that these individuals are emerging as the new elite in India, wielding influence over the country’s governance, financing political systems, and dictating luxury market trends.

Sales of luxury homes, high-end vehicles, and premium goods have seen substantial increases, while affordable housing and mass-market products are lagging behind.

India’s consumer economy appears to be narrowing rather than expanding—indicating a reality where the rich become richer while the middle class remains stagnant. This shift is transforming market dynamics, prompting brands to prioritise premium offerings over mass consumption.

With household savings reaching their lowest levels in fifty years, alongside rising debt and uncertainties surrounding job security, the forthcoming decade may increasingly reveal a stark divide between the affluent and the beleaguered middle class.