Last month, Canada became the first advanced economy to have a minister for middle class. Prime minister Justin Trudeau named Mona Fortier the minister of middle-class prosperity, in what is seen as a reaction to the concerns over a shrinking middle class. The worries over the middle class is not confined to advanced economies like Canada.
India is also witnessing tell-tale signs of middle-class distress. Car sales has been on a downward spiral for more than a year. Clearly, Indian consumers are not buying as much as they did earlier. The demand slump is not limited to cars – it has affected several categories such as fast-moving consumer goods, biscuits, jewelry and even undergarments. India’s small middle class that fueled its emergence as an economic power is spending less these days. Various studies have highlighted the trend of shrinking consumption expenditure in both urban and rural areas. While one would like to think that the current demand slump and the resultant economic slowdown are cyclical, different economic indicators point to a stagnation in upward mobility in the economy.
The emergence of a sizeable middle class after the liberalisation of the economy in early 1990s has been attributed for India breaking away from the low-growth equilibrium described by economists as the Hindu rate of growth. The economic reforms unleashed by the then finance minister, Manmohan Singh, lifted millions of Indians from poverty and created a middle class that had the buying power to consume more than the basic necessities of life.
India needs to invest heavily in education and healthcare to allow the aspiring middle class to have more disposable income. The middle class cannot grow without a vibrant manufacturing industry that can employ the country’s educated youth. This requires heavy investments in physical infrastructure to create congenial conditions for the growth of the manufacturing industry. There is also an urgent need to restart the unfinished reform agenda, especially in the areas of land acquisition and labour to improve the ease of doing business in the country.
Finance minister Nirmala Sitharaman will present her second Union budget in a few days. The moot question is if she will initiate steps to address the middle-class distress. She needs to leave more money in the hands of people to effectively address the demand slump and boost sagging economic growth.