India’s urban middle class is facing mounting financial pressure as wages fall for the first time since the pandemic, inflation rises, and household spending slows. This is eroding the economic foundation of a group long regarded as the backbone of the “India Story.”
Inflation-adjusted wages for listed non-financial companies shrank by 0.5% in the July-September quarter, according to Elara Securities, marking a grim milestone for real urban incomes. Simultaneously, inflation has eaten into disposable income, forcing families to cut back on both daily essentials and big-ticket purchases like cars.
The slowdown is starkly visible in corporate earnings. Consumer goods leaders like Hindustan Unilever and Nestlé India have reported weaker-than-expected growth, citing declining urban demand. Maruti Suzuki, the nation’s largest carmaker, saw rural sales grow 8% in the first half of the fiscal year, while urban sales shrank by 2%.
The government, under increasing pressure, has faced calls for interest rate cuts to stimulate demand. However, the Reserve Bank of India (RBI) remains firm, prioritizing inflation control. Despite opposition criticism of neglecting middle-class concerns, policymakers have limited room for maneuvering.
Economic growth has slowed significantly. GDP growth in the September quarter is estimated at 6.5%, the weakest in six quarters, below the RBI’s projection of 7%. “Subdued income growth is the main factor behind weak consumer finances,” analysts Nikhil Gupta and Tanisha Ladha of Motilal Oswal noted in a report.
Meanwhile, housing costs in metro cities have soared. Real estate prices have climbed 23% nationwide, with cities like Mumbai and Bengaluru seeing even steeper increases. Rent and utilities now eat into urban incomes, leaving little room for discretionary spending.
Corporate leaders, including Britannia Industries’ Varun Berry, have acknowledged the strain on consumers. Rising housing costs and stagnant wages have compounded the issue, creating a perfect storm for India’s middle class.
Private consumption, which constitutes nearly 60% of GDP, has faltered, with personal final consumption expenditure (PFCE) falling to 55.8% of GDP in 2023-24 from 58.1% in 2021-22.
