India needs to do more for its middle class.
India’s middle class forms the backbone of our economy and our democracy. It is currently under an unprecedented attack. The economic devastation which follows this health emergency will send many middle class families into poverty. Per the latest data released by US-based Pew Research Centre, about 1/3rd of the middle class was wiped out in the last year alone. To quote the report — “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,”. With the second wave laying waste to the country, millions more will suffer under the exorbitant medical costs and job losses.
Up until now, the government has chosen to focus more on the supply side — though corporate tax breaks and infrastructure investment plans. Those are good steps to rebuild our economy in the long run. But as economists across the spectrum have pointed out, a demand side intervention is required to provide immediate relief. This means direct cash transfers, not just to the impoverished but one that extends to the lower / middle classes too. This would be similar to what the US and other western economies have done over the past year through stimulus checks. Also, tax breaks. It would help put money back in the hands of the people.
This won’t be easy. Given the stretched financials and the 9.5% fiscal deficit we are staring at, the government may not have the cash to undertake an effort at this scale. This is where some creativity will be needed. As Dr. Manmohan Singh wrote back in August 2020 — India needs to make full use of loan programmes of international institutions such as the IMF and the World Bank. Our long track record as an impeccable borrower with no default, timely repayments and full transparency make us an ideal borrower for these institutions. Other avenues to raise capital should also be explored. I am sure there are smart economists looking at the data in a lot more detail than we are.
But as we have seen time again with this government, the challenge continues to be a lack of diligent planning and execution. The Government needs to rise to the occasion, and the first step towards doing that will be to shed the hubris, and acknowledge the ground reality around it’s much publicized “Atmanirbharta”
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