Indian economy at risk as Covid-19 pandemic shrinks country's middle class

People stand in a queue to get the Covid-19 vaccine at a civil hospital in Jind, India, on June 1, 2021.
People stand in a queue to get the Covid-19 vaccine at a civil hospital in Jind, India, on June 1, 2021.PHOTO: AFP

NEW DELHI - When Mrs Manisha (who uses only her first name) was hospitalised with Covid-19 last month, the family thought it would be only for a few days.

But the 58-year-old's health started deteriorating even as medical bills have continued to mount, pushing the family increasingly deeper into a financial crisis.

"We had to sell our car. All our savings, whatever we had is gone. Doctors say that multiple organs have been affected," said Ms Swati, 29, who is pregnant and on maternity leave.

Mrs Manisha's husband died last year of a heart attack.

Ms Swati, the eldest of her three children, said: "My sister was working in the travel line. Then she lost her job. Now she has a job as a customer care executive. But she has not been able to log in. She is mentally not in that space."

Her husband, Mr Anil Kumar, a manager at an auto component factory, is not earning as the firm is not paying salaries till it reopens.

The family, which together was earning over 40,000 rupees (S$725) a month before the pandemic, started a fund-raiser on Ketto, an Indian online crowdfunding platform popular for raising funds for medical expenses.

"We don't even have jobs, so we can't take out a loan. We are trying everything. But the situation is getting worse. We feel like everything is closing in on us," said Mr Kumar, 31.

India's middle class is under attack and families like theirs are in danger of being pushed out, one impact of the Covid-19 pandemic.

According to an analysis by the US-based Pew Research Centre, India's middle class, identified as those earning between US$10 (S$13) and US$20 a day, shrank by a record 32 million in 2020.  The middle class is estimated to be over 250 million.   

This has ramifications for the entire country, as the growth of the middle class by 57 million people between 2011 and 2019 had been the star of India's economic success.

Comprising an estimated 28 per cent of the population, the middle class fuelled consumption, which drove economic growth and allowed people to pull themselves out of poverty.

Now what happens to it impacts the overall economy.

"The middle class catalyses a multiplier effect in the economy by contributing 70 per cent to the total consumer spending and reinforces the fiscal front of the economy by making 79 per cent of the total taxpayer base," said Mr Rajesh Mehta, an international consultant on public policy.

"With a billion people at the base of the wealth pyramid and at least 32 million people falling from the middle class section, India may face a middle-income trap wherein the poor won't be able to move up the ladder over the years, leading to a stagnant economy in the long term and a rise in urban poverty."

The question now is how deeply India's middle class has been affected following the second Covid-19 wave and how permanent the setbacks are. Many companies have introduced deep salary cuts and retrenchments, with 8.6 million salaried jobs lost from February to April, according to the Centre for Monitoring Indian Economy.

"There is no doubt that there is a dramatic reversal occurring right now. But is the job loss permanent? Some firms have replaced workers with machines. Some have switched from formal to informal (work). So people's earnings are not coming back," said Associate Professor Amit Basole, an economist from Azim Premji University.

The hollowing out of the middle class has wider consequences, he said.

"Poverty has increased, as well as inequality, and the poor have lost more than the rich," he said.

Even before the pandemic began last year, the Indian economy was seeing slowing growth on the back of inadequate employment, falling consumption and reduced government spending. The economy in 2020 contracted by 7.3 per cent.

"The pandemic hit on top of a troubled economy, where households were already indebted and stressed. The effects are going to be complicated," said Prof Basole.

For many, the pandemic wiped out opportunities.

In February last year, Mr Jaishankar Kumar Bharti, 37, was filled with hope for a stable future after buying an auto-rickshaw, a motorised three-wheeler, to drive passengers in the capital city, Delhi.


People walk at a crowded market in the old quarters of New Delhi, on April 6, 2021. PHOTO: REUTERS

But then a 21-day national lockdown last March to curb the spread of the coronavirus shut down all economic activity. Just when things were beginning to pick up, a second, more devastating wave hit this April.

Mr Bharti, who grew up in poverty, with his father earning a mere 700 rupees a month as a mill worker, had by then fallen behind on his monthly loan payments of 15,000 rupees, leading to his vehicle being repossessed by the private financier this month.


In February last year, Mr Jaishankar Kumar Bharti was filled with hope for a stable future after buying an auto-rickshaw to drive passengers in Delhi. PHOTO: COURTESY OF JAISHANKAR KUMAR BHARTI

His middle-class dreams are now under threat as Mr Bharti, who used to earn 50,000 rupees a month as a driver before the pandemic, wonders how he will educate his two sons, the elder of whom is 13 and dreams of being a scientist.

"Before the pandemic, I bought my son a top-quality science book for 700 ruppees. If he asks me now, where will I go?" said Mr Bharti. "I'm struggling and I'm failing."

He now hopes to get a job as a personal chauffeur earning 20,000 rupees. But even that is fraught with difficulty, with Delhi currently under a lockdown that is being eased in phases. "If not for the pandemic," he said, "I would be doing great."