It’s the worst of times for the common man. UPA’s haloed aam aadmi is buckling under the ever-increasing financial pressure. Interest rates on home loans have been raised, monthly payments on car loans are higher, there is the added burden of high petrol prices, high food prices and possibly fewer raises in salaries.
So is the boom time over for the Indian middle class? CNN-IBN’s Face the Nationraised that question with an eminent panel comprising author and Economist Gurcharan Das; Director General of Indian Council for Cultural Relations, Pavan Verma and Managing Editor of Consumer Voice Shriram Khanna.
CNN-IBN’s Sagarakia Ghose moderated the debate.
Gurcharan Das kickstarted the debate by giving credit to the great Indian middle class. “No one says that capitalism is a smooth ride but I think if we just go beyond the horizon of the next few months, the fundamentals of our economy are very strong and it is the middle class which deserves a lot of credit for the savings and the consumption that they have raised so far,” he said.
Das said a repeat of mid 90s - when the rise in interest rates almost killed India’s growth for a period of five years – was unlikely. “The inflation will come down and hopefully the Reserve Bank will see some sense and not go in this highhanded way that it has. However, ultimately reforms will drive the economy and reforms have not happened for the last four-years. We need a government that will bring about reforms,” he said.
Das’s predicament was not a doomsday scenario but a warning signal that reforms must take off, yet again.
The Prime Minister has said that austerity is the need of the hour. However, many believe it is like bolting the stable after the horse has escaped. The Indian middle class has just tasted money, is just beginning to relish its wealth. Just how fair and practical is it to expect this class to become austere?
Explaining the situation, Pavan said, “This is a class which is the most resilient class in the world. It has seen adversity before and has gone through it. This is a class with two E's supporting it - Education and enterprise. It is a moment of difficulty but with their qualities, this is a class that will survive. It is known for its resilience, survivability and energy. It has been a survivor through far more difficult times.”
Some also believe the image of the Indian middle class as a mindless class is a media myth. In fact the Indian middle class is engaging in savings rate of 32 per cent and an investment rate of 35 per cent.
Pawan said it was the typical “have it, will flaunt” attitude. “India is a very hierarchical and prescriptive society. The middle class loves to indulge in it. But having tasted blood, this is not a class that is going to go down under. In fact India has one of the highest savings rate for any middle class in the world. This is a pragmatic, resilient and somewhat socially insensitive class, but it will survive,” he said.
Shriram Khanna joined the debate when asked if the Indian middle class will be able to rise again.
“I am confident that the kind of difficulties we are facing today, a mix of inflation, political uncertainties causing shivers in the Dalal street and a lot of external factors on food and petroleum prices,” he said.
Acknowledging that the Indian consumer is smart, Khanna cited an example. “When he goes to buy a shirt and you want to sell him a branded shirt which costs him Rs 500 more, he will want to know the difference in a branded and ordinary shirt. He is very discriminating,” he said.
Is the time ripe for the consumer movement to step in? This is the time when consumers and families will learn to save. “There is a globalised Indian class which goes out for holidays in Bangkok and Kuala Lumpur, some are going to America,” he explained.
But does the Indian middle class take inflation seriously at all? Khanna said this section of the population was conscious as well. “I think they might curtail their holidays by one day or have one less meal in a five star hotel or even ask shopkeepers the price of four things before they buy. But they are going to spend still.”
Gurcharan Das said that India needed good spenders. Disagreeing with Prime Minister Manmohan Singh’s austerity call, Das says PM was not talking like an economist. “For an economist, consumption is neutral and is not a value judgement and consumption has a crucial role in stimulating the economy. But having said that, it is not so bad if we do have a bit of cooling. There were a lot of people who entered the credit market and a lot of youngsters did not know how to handle it and therefore the default rates of the banks were beginning to rise and rise in a worrisome way,” he said.
He asserted it may be a good thing to have a bit of cooling off. Gurcharan also adds that the fundamentals of the Indian economy are just too good and the middle class, instead of being bashed should be credited for doing so much for the country.
A reality check?
Is this a moment of genuine change?
“When people are forced to find better ways to work, to sell product and services, to reduce costs and prices, tighten their belts, these are the conditions in which competition works the best way and this is a time , the year 2008-09, going towards the next general election, is going to be a time of change not only for the politicians but the society also,” Khanna explained.
But in this period is also a necessary corrective, which will lead to some genuine transformation.
Throughout India’s history of growth since 1947, there have been no coordinates that can be taken for granted, not power, water, electricity, not transport and not even medical. India’s middle class, Pavan said, was a class, which has grown because of a result of adversity, managing to survive through license raj and bureaucratic control. “Today 50 per cent of India’s industrial output comes from the small scale industry. This is a class that knows how to survive. It is a tough time and the good times are under a reality check,” he said.
Agreeing with Das, he said the fundamentals of the Indian economy are strong.
However, aspirations are a hallmark of the great Indian middle class. Khanna said in addition to the 350 million people who were doing well, there are another 350 million people who want to do well.
“Those include people who are in the lower middle class and in the lower class. This is the time when they are struggling hard to work better. This is the time that they will put in their best because for them it is even more difficult,” he said.
A productive negativity?
Does India's story continue to be hopeful?
On an optimistic note, Gurcharan Das concluded that people would be even more hopeful if the Government began implementing reforms.
“We should not assume that inflation would necessarily kill growth. There is an example in the 1960's and 70's. They had high inflation, but they also had very high growth. We need to bring the reforms that Raghu Ram Rajan has spoken about in his financial sector report. We are still a capital short country and most importantly the reform we need to do is in education. We need to get rid of the License Raj from education and we need to give autonomy to educational institutions,” he said.