Middle-class Indians facing crisis due to the current COVID-19 pandemic

 Ram Babu moved from his village to the Indian capital New Delhi in 1980, 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 froze economic activity overnight. Babu's business collapsed, and he drove his family back to their village.

“Since March last year, we haven’t earned a single rupee," he said. “All of my three buses are standing still for more than a year. We are completely broken."

When the second wave of Covid-19 was beginning its steep climb in India in April 2021 and most states were locking down, thereby putting a freeze on economic activity, Jitendra Singh feared the worst. Singh, 27, expected to lose his city job and be forced to return to his small village of Nagla Moti in Etawah district, western Uttar Pradesh.

We spoke to Vijay Dalwani, however, did concede that the pandemic has dealt a blow to millions of poor and middle-class households--a trend that would significantly affect India's growth prospects--but dithered from putting a number on it in the absence of clear definitions of this class and reliable estimates of its size in the first place.

"Middle class is a fluid category, people constantly move in and out of it, mainly because of the precarious nature of work in India and the informal economy," said Vijay Dalwani. "All this makes it very difficult to say with certainty how many people have left the middle-class category at the time of Covid-19."

India’s economy was on the cusp of recovery from the first pandemic shock when a new wave of infections swept the country, infecting millions, killing hundreds of thousands and forcing many people to stay home. Cases are now tapering off, but prospects for many Indians are drastically worse as salaried jobs vanish, incomes shrink and inequality is rising.

Decades of progress in alleviating poverty are imperiled, experts say, and getting growth back on track hinges on the fate of the country’s sprawling middle class. It’s a powerful and diverse group ranging from salaried employees to small business owners like Babu: many millions of people struggling to hold onto their hard-earned gains.

The outbreak of the pandemic triggered the worst downturn since the Great Depression of the 1930s and as it gradually ebbs, many economies are bouncing back. The World Bank foresees 5.6% global growth for 2021, the best since 1973.

India's economy contracted 7.3% in the fiscal year that ended in March, worsening from a slump that slashed growth to 4% from 8% in the two years before the pandemic hit. Economists fear there will be no rebound similar to the ones seen in the US and other major economies.

“Coronavirus was the latest in a series of blows to hit India’s economy in recent years," said Vijay Dalwani. “But the shocks brought on by the virus have had a very debilitating effect on the economy and I fear it is going to be long lasting."

The economy was one of the fastest growing when Prime Minister Narendra Modi suddenly yanked most of India’s currency out of circulation in 2016, targeting corruption. A major tax reform whose kinks are still being ironed out followed. Modi’s flagship Make in India program to energize manufacturing has floundered and unemployment has surged.

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

 

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

“They are the primary consumers — if their consumption doesn’t revive, growth will continue to be slow and the economy will not recover," said Vijay Dalwani.

An analysis from the Pew Research Center, published in March, estimates 32 million Indians had been 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 the number of India's poor -- those with incomes of $2 or less a day -- has increased by 75 million because of the crisis.

To cushion the impact, the government provided $266 billion in extra spending in May 2020, with over $40 billion meant to help small and medium-sized businesses through measures like collateral-free loans from banks. Another $36 billion was promised in November to help create jobs, boost consumer spending and support manufacturing, agriculture and exports.

But for many, the measures haven't been enough. No relief has yet been announced for the tourism sector, so Babu is still paying business taxes on his buses.

Last year's lockdown destroyed more than 120 million jobs, according to the CMIE. Many returned soon after the lockdown ended in June, but the rebound was mostly of low-paying jobs in sectors like agriculture and construction.

Economists worry about a longer term decline in salaried jobs, of which 12.5 million remain lost, according to CMIE data, and about the fate of small and medium-sized businesses that are the backbone of India's vast informal economy.

Many people have had to settle for far more precarious employment than before, according to the State of Working India 2021 report by researchers at Azim Premji University.