India is currently facing a very damaging second wave and we’re all witnesses of its impact on people’s lives, with the daily rising active cases and deaths. Around this team last year, a nationwide lockdown was imposed as the total cases were at the 500 mark. Disturbingly enough, the country has crossed about the 15 million mark, registering more than 2 lakh cases every day and well, there’s no sign of a nationwide lockdown. It is not surprising because looking at the current state of the economy, we know the country cannot afford another lockdown. This fact just explicitly delineates the trade-off between health and economy and let’s just say the government is readily napping on health. What is disappointing is the fact that these surge in cases only brought forward the government’s grossly inadequate preparation to handle the crisis. While we expected the country to rebound by April, it now looks like the economy may not as well be able to make up for the economic contraction it suffered in the last financial year. However, one thing that our prior experience of the recession told us is that India’s excessively large income divide continues to shine even in the pandemic, with billionaires like Gautam Adani earning more than any person on the planet and the middle-class losing jobs, savings and resources.
What is the current status of middle-class people in the country?
Statistically, prior to the pandemic, it was anticipated that 99 million people in India would belong in the global middle class in 2020. A year into the pandemic, this number is estimated to be 66 million, cut by a third.
Meanwhile, the number of poor in India is projected to have reached 134 million, more than double the 59 million expected prior to the recession. Keeping in view the severity of the second phase, it cannot be denied that the impact on the middle class is going to be even more severe, given about one-third of middle-class people slipped down to earning less than USD 10.1 dollars per day. One of the most fundamental theories in microeconomics, known as Arrow’s impossibility theorem, states that there is no “perfect” way to make social decisions in a democracy in the sense that a decision that aggregates every group’s preference. Well, let’s just say it is time that the government places on priority the needs and preferences of the middle and lower class.
Why are middle-class people an important resource for the economy’s growth?
Apart from the political reasons of the middle class actually maintaining a country’s democracy with respect to the fact that the middle class is often considered the glue that keeps modern liberal democratic economies from falling apart under the strain of ever-rising inequalities, they’re also economically very significant and looking at the current conditions, very vulnerable too. It is a well-established fact that the countries with a strong middle-class base have stronger economic growth, as expressed by a sample of 72 countries, in a paper by the Asian Development Bank (ADB) in accordance with the theories of Nobel Prize-winning economists like Abhijit Banerjee and Esther Duflo, and many others. It is primarily reasoned due to the presence of entrepreneurs in the middle-income class that foster growth and innovation in the economy. Not only that, the generalised tendency of the middle class to save and accumulate human capital in the form of education excessively add to the two major components of aggregate demand and thus, the country’s Gross Domestic Product. The middle class has time and again also displayed their ability to demand better public service delivery and has been in constant support of growth-oriented policies. There’s no denying of middle class’ role in holding the government accountable for their actions and responsible for their promises.
Why are the lower and middle-income people suffering?
This discussion is necessary to undertake at a time when the government is so easily getting away with its actions and the middle- and lower-income groups are left struggling while the rich are adding milestones to their caps. The middle class is deteriorating and we’re witnessing it first-hand. “Among middle-class households, there is now a growing discontent with economic conditions. In this context, the stagnation of middle-class living standards in OECD countries has been accompanied in recent years by the emergence of new forms of nationalism, isolationism, populism and protectionism. Nationalistic and anti-globalization sentiments can arise because a shrinking middle class produces disillusionment and damages political engagement, or turns voters towards anti-establishment and protectionist policies. Political instability is an important channel through which a squeezed middle class may upset economic investment and growth,” states a 2019 OECD book, titled “Under Pressure: The Squeezed Middle Class”
Unemployment levels hit a record high during the pandemic and it doesn’t take a genius to assess where its direct impact would’ve been. With the economy not recovering as it should and some states further going in lockdown, the unemployment rate is not expected to go a lot down either. As witnessed from recent headlines, retail inflation has also picked up pace- causing further harm to the vulnerable sections of the country. The loss of savings during the pandemic as a result of collective job losses and current inflation has further caused distress among the middle-income groups- the common men. Oh, and let’s not forget what the recent retail inflation was fuelled by the heavy taxation on petrol and LPG. All this information presented is ideally to point at the dire need for the government to undertake policies for the welfare of the middle class. This could include reordering the taxation and benefits matrix, bringing down the cost of living and addressing the unemployment problem in the country.