Educated and employed but still struggling: India's middle class under strain

Educated and employed but still struggling: India's middle class under strain12 hours agoSaurabh Mukherjea & Nandita RajhansaGetty ImagesThe true cost of middle-class living is doubling every eight yearsIn a darkened control room in Navi Mumbai, 100 operators oversee bots monitoring 30,000 ATMs across India.Their cameras, sensors and bots do the work that 60,000 security guards once did.That control room is a small window into something much larger. Across India, the quiet machinery of automation has been reshaping - and in many cases, eliminating - the jobs that the middle class was built on. And the middle class is only now beginning to reckon with what that means.As stable incomes come under pressure, many are turning to riskier ways of making money to bridge the gap.Consider VS, a 27-year-old BTech graduate from a small town near Bhilwara city in western Rajasthan state. He earns 14,000 rupees ($151; £113) a month as a freelance salesperson. Last year, he lost 1.3m rupees - nearly his entire family's savings - trading Futures and Options (F&O) on the stock market. He is one of nine million Indians doing the same thing - and are collectively losing over $12bn a year. That figure is roughly equal to the federal government's entire annual education budget.These are not gamblers. They are educated, aspirational people with nowhere else to put their ambitions.Or consider Rahul Singh, a delivery agent with a food delivery app. Singh explained that he borrowed money not just to finance his home renovation, which is a discretionary spend, but also for "covering essential expenses, such as rent, medical bills and any other unforeseen expenses, which were critical for survival".VS and Singh come from different layers of India's vast middle class and they are socially and economically different. But their predicament is anything but different. These are not cautionary tales about individual failure. They are portraits of a class under pressure - the 40 million income taxpayers who earn between 500,000 ($5,283; £3,969) and 10m rupees annually, and who form the productive core of the Indian economy.Something is going wrong for them, as we discovered while researching our new book, and it is happening on multiple fronts at once.Getty ImagesNearly half of all Indian families have taken personal loansWhite-collar job creation - the kind of employment that an engineering or commerce degree was supposed to guarantee - has fallen from 11% growth before 2020 to just 1% today, according to Naukri Jobspeak Index.The decline didn't begin with AI. Automation had been hollowing out middle-skill work since the early 2000s, quietly eliminating the clerical roles, bookkeeping jobs and sales positions that once absorbed India's graduates.But AI has dramatically accelerated the disruption. India's IT services sector - the country's largest graduate employer with eight million workers - is in active retrenchment. The government's own planning body, Niti Aayog, estimates that by 2031, AI could eliminate close to three million IT and customer service jobs. The CEOs of India's most profitable companies speak openly to us about using AI to cut salary bills by a third. At one large private bank, a single AI tool now handles 95% of customer queries that once required a 3,000-strong call centre team.Into this contracting market, eight million new graduates arrive every year. The results are becoming hard to ignore. At IIT Bombay - one of India's top technology institutes that was once a near-guaranteed passport to prosperity - fresh graduates are leaving with lower salaries than their predecessors. Across IITs nationally, 8,000 of 21,500 graduates remain unemployed. The IIT degree, long India's most coveted credential, is beginning to look less like a golden ticket and more like a lottery.Getty ImagesWith eight million workers, India's IT services sector is the country's largest graduate employerEven for those who find work, something has quietly gone wrong with the economics of middle-class life. Over the past decade, the average middle-class income taxpayer's annual income has grown by around 50,000 rupees - roughly the price of a decent smartphone. In isolation, that sounds like progress. Against the actual cost of living, it is a slow erosion.Recent research shows a vegetarian thali (an Indian meal comprising several small dishes) now costs 11% more each year, an entry-level car or motorcycle rises by 7 to 8% annually and medical costs climb at 14%. Our estimate - based on spending patterns for typical middle-class households across rent (10-13%), food (7-9%), healthcare (around 14%) and education (8-10%) - suggests that the true cost of living is doubling roughly every eight years, implying an effective inflation rate of about 9% for this group. A family that lived comfortably on 1m rupees in 2016 would now need close to 2m a year.Their salary, in most cases, has barely moved. The middle class is on a treadmill, and every year the belt speeds up.The debt is real, and it is growing.The gap between what people earn and what life costs has to be filled somehow. Increasingly, it is being filled with borrowed money. India's non-housing household debt as a share of income now exceeds that of the United States and China. Nearly half of all Indian families have taken personal loans; 67% of borrowers had their first loan before the age of 30. For those carrying debt, nearly 40% of annual income goes to servicing it.This borrowing isn't building anything. It is financing holidays, smartphones, school fees and hospital bills - consumption and survival, not investment. Between 5% to 10% of retail borrowers are caught in what lenders call a debt trap: taking new loans to pay old ones, with no clear exit. Getty ImagesMany youngsters take up low-paying BPO jobs when they can't find work of their choosingIn western Pune city's Hinjewadi tech park, young engineers with degrees and debt queue up each morning for walk-in interviews at BPO firms, hoping to land data entry jobs paying 18,000 rupees a month. This is what the compression looks like at ground level.The consequences are rippling outward.FMCG volume growth has dropped from 11% some 14 years ago to 3% today. Car sales are stagnant. Consumer durables growth has collapsed from 11% to 1-2%.When we speak with the leadership of India's largest consumer companies, there is a particular expression - stunned, a little lost - that keeps appearing. The Indian consumer, they are slowly realising, has stopped spending. Not as a lifestyle choice but because they can't - after a brief, post-Goods and Services Tax (GST)-cut burst of spending that now appears to be fading.This matters beyond household balance sheets. Consumption accounts for 60% of India's GDP. India's post-1991 growth model was built on a specific and elegant logic: middle-class spending creates demand, demand creates jobs, jobs create more spending. A virtuous cycle, three decades in the making. That cycle has broken.There is a cruel paradox at the heart of all this. India now produces more graduates than ever - over eight million a year. And yet, becoming a graduate actively reduces your chances of finding work. The unemployment rate for graduates stands at 29.1%, nine times higher than for those who never attended school. Education, the defining aspiration of the Indian middle class, has stopped delivering on its promise.Politically, this class has no champion. With 40 million taxpayers among 970 million voters, the middle class is large enough to bear the fiscal burden of the state but too diffuse to command its attention. Politicians court the poor for votes and the wealthy for funding. The middle class pays for both - and waits.The middle class built the post-economic reforms India. Whether modern India can now sustain its middle class is the question this decade will answer.Saurabh Mukherjea and Nandita Rajhansa are the authors of "Breakpoint: The Crisis of the Middle Class and the Future of Work".Graduate unemploymentAsiaInflationIndia