Recurrence of pandemic spells trouble for India’s middle class

New Delhi – Ram Babu moved to the Indian capital New Delhi in 1980 from his village to clean cars. Soon, he learned to drive and got a job as a tour bus driver. Decades later, he set up his own company, Madhubani Tours and Travels.

In March 2020, a stringent nationwide lockdown to fight the coronavirus pandemic brought economic activity to a halt overnight. Babu’s business collapsed and he took his family back to their village.

“Since March last year, we have not earned a single rupee,” he said. “All three of my buses are standing for over a year. We are completely broken.”

India’s economy was on the verge of recovering from the first pandemic shock, when a new wave of infections shook the country, infecting millions, killing hundreds of thousands and forcing many to stay home. gave. Cases are decreasing now, but the prospects are dire for many Indians as salaried jobs disappear, incomes drop and inequality is rising.

Experts say that decades of progress in poverty alleviation are under threat and that getting growth back on track depends on the fate of the country’s vast middle class. It’s a powerful and diverse group ranging from salaried employees to small business owners like Babu: many millions struggling to hold on to their hard-earned money.

The outbreak of the pandemic triggered the worst recession since the Great Depression of the 1930s, and as it slowly eases, many economies are bouncing back. The World Bank has forecast 5.6% global growth for 2021, the best since 1973.

India’s economy contracted 7.3% in the fiscal year ended March, slashing growth to 4% from 8% in the two years before the pandemic hit. Economists fear there will be no rebound similar to that of the US and other major economies.

“Coronavirus was the latest blow to affect India’s economy in recent years,” said Mahesh Vyas, chief executive officer of the Center for Monitoring the Indian Economy (CMIE). “But the shock brought on by the virus has had a very debilitating effect on the economy and I fear it is going to be prolonged.”

The economy was growing fastest when Prime Minister Narendra Modi suddenly took most of India’s currency out of circulation in 2016, targeting corruption. A major tax reform, the entanglements of which are still being ironed out. Modi’s flagship Make in India program to boost manufacturing has collapsed and unemployment has risen.

The poor are suffering the most from this pandemic. But this is the first time in several decades that India’s middle class has taken such a big hit, Vyas said.

After 40 years of hard work, Babu, the owner of the tour company, was taking home about $2,000 a month. Business was going so well that he took out a loan to buy his third tour bus.

In May 2020, he used one of those buses to bring his wife and three children back to Bhugol village in Bihar, one of the poorest states in India. He could no longer afford the rent of their modest one bedroom apartment in New Delhi.

Estimates of the size of India’s middle class range from 200 million to 600 million, but all experts agree that its prosperity is crucial for the economy to revive.

“They are the primary consumers – if their consumption does not improve, growth will slow down and the economy will not improve,” said economist Arun Kumar.

An analysis by the Pew Research Center published in March estimated that 32 million Indians were pushed out of the middle class by the pandemic.

The report defined the middle class as people earning $10 to $20 a day. It estimated that the number of India’s poor – those earning $2 or less – has increased by 75 million because of the crisis.

To mitigate the impact, the government provided $266 billion in additional spending in May 2020, of which more than $40 billion was meant to help small and medium-sized businesses through measures such as collateral-free loans from banks . Another $36 billion was pledged in November to help create jobs, boost consumer spending and support manufacturing, agriculture and exports.

According to CMIE, last year’s lockdown destroyed more than 120 million jobs. Many returned soon after the lockdown ended in June, but the rebound was mostly to low-paying jobs in sectors such as agriculture and construction.

According to CMIE data, economists are concerned about a prolonged decline in salaried jobs, of which 12.5 million people have been lost, and about the fate of small and medium-sized businesses that form the backbone of India’s vast informal economy.

According to the State of Working India 2021 report by Azim Premji University researchers, many have had to settle for more precarious employment than ever before.

Rosa Abraham, one of the report’s lead authors, said, “What is a sign that people in distress are resorting to any kind of employment, even if it pays far less than what they are doing? Yes and comes with less security.” “It is clear that the job reforms we are seeing now are characterized by a great deal of informality.”

The same is true for Bijender and Kanika Gautam, owners of Ultra Bodies fitness studio on the outskirts of New Delhi.

Gyms were among the last types of venues allowed to reopen from the 2020 lockdown and were closed again during the latest outbreaks. Gautam was thriving on income from his 100 gym members, enough to rent his two-storey space and pay five trainers. Now, they’re relying on everything they can to offer online fitness training, and struggle to afford rent and school fees for their two kids.

“Earlier, when we went to the market with our kids or went out to eat, we didn’t have to think twice about spending money,” Bijender said. “But now, the situation is so bad that we are trying to survive somehow. We don’t know whether we will be able to continue our business or not.”

CMIE’s Vyas said that on a broader, wider scale, such shocks can undermine confidence and future growth.

“You need that aspiration or drive to go to college, get a good job, save money to buy a house – you need that ambition to make your life better than your parents. The economy thrives, and this is one important thing that has taken a big hit,” he said.

Babu says that he fears that his life is turning upside down now. He hoped that his youngest daughter, 13, could become a pilot. Now that he has to kick her out of her school in New Delhi, it seems impossible.

He said in a phone call from his village that his dreams of buying a house in the city had been crushed by loans he could no longer repay.

“I am not used to living in the village anymore. Whatever we have, whatever we are, it is all in Delhi,” he said. “I should have just continued working as a driver, maybe then I wouldn’t have gotten into this trouble.”


Associated Press journalist Rishabh R. Jain and Neha Mehrotra contributed to this report.


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