Automation, economic downturn threatens India’s middle class
Routine jobs which were once the backbone of the Indian middle class have started disappearing
India’s much-hyped middle class is facing an existential battle faced with a triple challenge of automation and joblessness, record drop in household savings as well as a slowing economy.
These are the findings of a recent report by Marcellus Investment Managers, an investment firm based in Mumbai, India, that sheds light on the growing challenges faced by India’s urban middle class.
The report says that the Indian middle class, like that of any other developing economy is one of the fastest growing demographics in the slew of economic changes. This section of the society usually consists of those who, using their enterprise and/or intellect, rise from the trenches of low-income cohorts.
According to the Income Tax Department’s data for individual taxpayers till fiscal year 2023, individuals earning between INR 1 million and INR 10 million have seen their incomes grow at roughly 20 pc per annum in the decade that went by, whereas those earning less than INR 1 million of annual income have seen an annual growth of just 12 pc.
Growing troubles of the middle class in India
According to the report, three key factors are contributing to the struggles of this demographic. First, automation and technology are replacing human labour in routine jobs across offices and factories. Second, the country’s economy is currently in the early stages of a cyclical downturn, which is further worsening the situation. Third, household balance sheets are in their worst shape in 50 years, further straining financial stability.
The report highlights that routine jobs which were once the backbone of this demographic have started disappearing with numerous companies turning to artificial intelligence and automation softwares to perform the mundane tasks.
Additionally, the post-pandemic economic growth spurt experienced by India has slowed down with companies reporting sub-par earnings. While these downturns are typical in a free-market economy, its impact on the middle-class demographic has been significant, directly impacting their consumption habits.
According to a poll of 17 economists India’s economic growth in the second quarter of 2024 is projected to have slowed down to 6.5 pc in comparison to 8.1 pc a year ago, during the same period. The poll attributes this slowdown to weaker urban consumption, subdued government spending, and the impact of heavy rainfall on mining and electricity.
The report adds that after four years of continuous growth in loan balances, Indian households are facing their worst financial condition in half a century. According to data by the Reserve Bank of India (RBI), net household financial savings as a percentage of GDP have hit their lowest level since 1976. However, a key distinction is that gross household savings (as a percentage of GDP) have remained relatively stable at around 10-11 pc, except during the pandemic when it spiked to 16 pc. The sharp decline in net household savings in recent years can primarily be attributed to the significant rise in household debt, rather than a drop in overall savings.
Marcellus in its report noted that while cyclical downturn may stabilise in the coming quarters, technological disruptions and declining household savings pose bigger threats.
