Is the Indian middle class growing … or shrinking?

Some 10% of the richest Indians are apparently driving actual money-making consumption. You know, paying for the things they want — when they want it.The next 23% are “heavy consumers and reluctant payers”. And the remaining 67% have absolutely no extra money to spend on anything beyond the basics — sometimes, not even that.Usually, numbers like these don’t move the needle. It is a country of 1.4bn people, one might think, and explain it away with the brute force of large numbers. And one can always find “problems” with how the numbers were even arrived at — the sample was too small, the sample was not representative, the non-profit that did the survey had a point to make, the government body which came up with the numbers changed its methodology, and so on. The thing is, these numbers came from a venture capital firm, Blume Ventures. People who have to figure out actual spending capacity as closely as possible because their business model depends on it.They say that some 1bn Indians have no extra money to spend. And that some 300mn people are those slowly opening up their wallets because they can, sometimes (not too happily, though) — they make up the middle aspirational class. And see this chart? medium118941649The decline in the number of the poorest people, as counted by Blume reports, coincided with a change in their average income — from $1,500 a year in 2022 to $1,000 a year in 2024. During this time, the average income of the richest went up — from $12,000 in 2022 to $15,000 in 2024.For the middle class, however, nothing changed — an average $3,000 then and an average $3,000 now.How long would it take to pay for a home? A car? An iPhone?Let’s take that average middle class income, $3,000, as a base. It’s around Rs 2.6 lakh in a year, or a little short of Rs 22,000 in a month. What would it take to buy the conspicuous things usually associated with the “aspiration” part of the middle class?The National Housing Bank (NHB) index shows that the average price of a home in Delhi is around Rs 10,000 a sq ft. So, a basic 1,000-sq ft home could cost around Rs 1 crore, without factoring in things like location or age. About 38 years’ salary.A car, at the average price of Rs 13 lakh expected this year? Close to 5 years’ salary.An iPhone — the cheapest one, around Rs 60,000? Almost three months’ salary.‘Premiumisation’ is old news now. But are people actively ditching cheaper options?Home prices are already expected to climb faster than consumer inflation this year, a Reuters poll of housing experts this month said. The NHB index shows that under-construction property prices are usually higher than assessment prices — but this gap has been getting wider since mid-2022 in many cities. And Knight Frank reports on Indian real estate over the years also show how this has changed.For instance, in the first half of 2021, some 19% of homes sold in major Indian cities cost more than Rs 1 crore. By just the second half of 2024, a “massive 46%” of home sales were in this category. And within that, the largest growth right now is that of the Rs 2-5 crore segment. But the report points out that close to 40% of the unsold inventory of houses in these cities cost less than Rs 50 lakh. Because sales are dropping. So, rich people have more and more money to buy houses, while poorer people can't even buy the houses targeted for them.Likewise, for cars, prices have risen 7-9% annually over the past five years and, like most things people are buying, the share of “premium” vehicles has been shooting up. SUVs used to account for 23% of car sales in 2019 — that share has increased to 54% now. Meanwhile, hatchbacks, which used to make up 47% of car sales, are now down to 25%. So, those ready to splurge are splurging bigger, while those on a budget are increasingly not in the market anymore.When does this happen — this preference for expensive things beyond what an average middle class person might be able to spend? When only richer people buy homes and cars, and poorer people stop. Or when not-so-rich-but-slightly-comfortable middle class people decide to buy better, on credit.Credit is great … but it only works when a lot of things go rightSince just 2023, outstanding personal loans have grown a total 44%, the January 2025 update on credit data from the RBI shows.Yes, credit growth is good. But bad loans are expected to rise in the upcoming financial year — analysts don’t agree on the scale but Fitch expects a 25% increase over the last financial year. And if it seems like it may not be a “middle class” problem, the Fitch analysis says that about half the borrowers with unsecured retail loans hold “at least one other, often high-value secured retail loan, such as a housing or vehicle loan, which could also be affected in the event of default”. medium118941669But why now?India has always been an unequal society. Aspiration has always defined the middle class. And catering to that aspiration has always driven the economy. So, what’s different now?That people are saving less, borrowing more and experimenting with stocks way more has been established. But the scale of change is striking. medium118982808If you think about it, is it likely — not right or wrong, just likely — that previous generations of middle class Indians would have thought of paying Rs 1.45-crore interest on an Rs 80-lakh loan (assuming a Rs 20-lakh down payment) as a practical way to fund their dream home? Probably not. But it made sense to a lot of people over the past few years because the hope was that their incomes and wealth would keep growing as the economy kept growing.And now, for a lot of people, that consistent promise of upward mobility has been taken away.The latest Economic Survey said that “corporate profitability soared to a 15-year peak” in the last financial year. But “while profits surged, wages lagged.” It flagged this as a risk to the economy because stagnant incomes mean people spend less, adding, “To secure long-term stability, a fair and reasonable distribution of income between capital and labour is imperative.”Data from the International Labour Organisation show that the average hourly earnings of an Indian worker are the fifth lowest in the world in PPP terms. And when it’s someone with an advanced degree or doing a skilled job, they’re still paid the world’s seventh lowest wages. medium118942018 medium118942040How does one save, though? Even food prices are up 6% over last year — within that, there has been a 16% price rise for edible oils, 12% for fruits, and 11% for vegetables. If we push the date for comparison back by just three years, to 2022, the sustained price pressure on a household shows up. Between January 2022 and January 2025, food prices grew over 20% (of which, cereal prices alone went up 33%). Healthcare prices have gone up 16% in these three years. Education costs, more than 15%. And transportation costs, about 9.5%.It is not a contest most middle class people always expect to win — the one between ever-soaring prices and earnings and savings. But what they have to spend their money on does determine how things turn out. A decade ago, the largest share of urban non-food expenses was on education, the government’s consumption survey shows. Now, it’s on transportation, just getting to places.In response to a question in last month’s Parliament session, the government said that it “does not have any information on the ‘shrinking middle-class’ syndrome”. Which is technically true. Their numbers have not shrunk. Only what they can do with their money.Lead illustration: Uday Deb