AtmaNirbhar without the Middle Class?

The FM finished sharing the details of AtmaNirbhar Bharat Abhiyan. The Main benefits for the middle class include

  • Moratorium on EMI Payments
  • SME (Many owners of SMEs are Middle Class)
    • 3 lakh crores emergency working capital facility
    • Fund of Funds for SME, Rs 50000 crores
    • Subordinate debt for SMEs, Rs 20000 crores
  • Home Loan Interest Subvention for Middle Income Households – Rs 70000 crores

If one summarises the above measures, (2) and (3) will be useful only if the Lockdown ends. The EMI Moratorium is a temporary respite, we have to start repaying again once 3 months end in June.

Let us look at a survey carried out by LinkedIn, a popular tool amongst India’s working middle class (62 million users, 15-20% of Indian Households)

  • 62% of Self Employed professionals reported a drop in income
  • 32% of Overall workforce reported a drop in income

So even before lockdown ends, Incomes have fallen forcing many Indians to cut their lifestyle. Middle class is invested mostly in Bank Deposits and Real estate. Fixed deposit rates are down significantly (5.5% for 1-year FD, Inflation in April was 5.8%). Investments in real estate have gone down over the last 5 years. On top of it, the stock market where millions of Indians have invested through ULIPs/ Mutual Funds and Direct Equity is down to the levels of May 2017. That is 3 years of growth wiped out.

In our short survey (115 Sample) amongst Middle Class Indians, we found that 39% felt that the Govt has done as well as it could. 61% felt the Govt could have done better with 37% feeling the Government COULD HAVE DONE A LOT BETTER

While no one in the Middle Class expects GOI to pay them cash, a few things could have helped – Reduction in Income Tax Rates, Removal of LTCG, Reduction on GST for many consumption items and so on. All of these would have enabled the middle class to save more and therefore boosted middle class confidence to spend once the lockdown ends. Instead, 50-60% of the middle class will not spend aggressively even after lockdown ends. If they don’t spend, the economic recovery will take a much longer time. That is why many countries in the world have given direct cash transfer to their citizens. It is not because they would buy during the lockdown but will have the confidence to buy as soon as the lockdown ends. Instead, the Indian Middle Class waits anxiously at home.

Indian Middle Class

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India’s Middle Class makes up for nearly 60% of India’s households (Bain and Company) and some 90% of the consumption. The lower middle class (Those earning between Rs 3 lakhs and 7 lakhs) makes up for more than half of the middle class households households and are the most vulnerable group during the current lockdown.