Breakpoint: Why India's middle class is losing its economic footing

Recent trends in technology-led automation, taxation policies, and rising unemployment have squeezed out the middle class. This book delves into what that means for India and whether it is all gloom

Break Point: The Crisis of the Middle Class and the Future of Work

by Saurabh Mukherjea, Nandita Rajhansa & Sapana Bhavsar

Published by Juggernaut

280 pages ₹528

 

Following liberalisation in 1991, the surging fortunes of the information technology (IT) sector created jobs at a good clip, and with exports growing from 6 to 24 per cent, India grew at a compounded annual growth rate (CAGR) of over 7 per cent. The economic renaissance was led by consumption instead of investments or exports, unlike other East Asian economies.

 

The book defines the middle class as those earning between ₹5 lakh and ₹1 crore based on income tax filings. There are 40 million such people, and the book contends that they form the backbone of the consumption-led growth that supports the employment and livelihoods of 200 million people through its forward linkages. Any disturbance to their fortunes, therefore, affects the fortunes of the rest.

 

There are two broad lines of enquiry: The primary causes (inflation, demonetisation, overvalued currency, and so on) that have caused the drop in fortunes of the middle class; and how this shrinking fortune manifests itself (higher debt, higher unemployment, low female worker participation) and gets transmitted to the rest of the economy. The book is mostly about the latter.

 

Recent trends in technology-led automation have eliminated a vast swathe of jobs at the lower levels, such as in BPO and clerical and repetitive jobs. While jobs are vanishing, India’s universities are disgorging eight million graduates a year, leading to unemployment among graduates being the highest for any class at 29 per cent. A third of the world-famous IIT graduates failed to get jobs in the latest round, even as the average offer has shrunk from ₹6 lakh to ₹4 lakh.

 

The impact of AI is all-pervading. While it has started replacing jobs that require cognitive skills, it has not left even highly human-intensive security jobs, the second-largest after construction, as an employment avenue for 1.2 million jobs. Sensors, cameras, bots, and centralised control are taking over these jobs. The job of 60,000 security guards employed for monitoring 30,000 ATMs is now being done by 100 agents from a single location. The middle-class dream and an economy superimposed on it are beginning to wilt.

 

All things considered, the book is more descriptive than analytical. Nevertheless, some facts recounted in the book ring alarm bells. Nearly 45 per cent of all retail borrowers are subprime; India’s outstanding personal debt for non-housing loans is higher than even that of the US and China. More loans are now financing consumption, such as travel and smartphones, but the loans taken for financing housing, automobiles, and gold are shrinking. The Asset Quality Review in 2015 has forced banks to shy away from corporate loans to chase personal loans. Between 2019 and 2024, income tax collections grew by a staggering 16 per cent CAGR, crippling consumption growth at a time when neither jobs nor the real income of the middle class grew significantly. All this has pushed the middle class into heavy debt, and nearly 40 per cent of their earnings now go towards servicing borrowings, deeply impacting consumption.

 

The authors rightly contend that the middle class, which contributes 53 per cent of income tax and 30 per cent of goods and services tax and creates the bulk of the downstream jobs for the unorganised sector, receives scant time or attention in policymaking. The group does not assert itself in the electoral process in line with its important contribution. The government has woken up a bit late with its income tax cuts in 2024 and supplemented it with selective GST cuts in September 2025, which led to some healthy offtake during the festival season. It has done well to curb online gaming, and a similar ban on F&O (futures and options) trading would greatly help the middle class regain its consumption momentum. It is shocking to learn that the losses of retail investors in F&O trading between 2022 and 2025 amount to ₹3 trillion, with the gains accruing to brokers, institutional investors and the market regulator.

 

The authors are optimistic about the future. They expect growing entrepreneurship to make up for job deficits but rightly point out the multiple risks. High risk and low returns, heavy costs, time delays, and risks in procuring land (nearly one-fifth of murders in India are land-dispute related), high costs of working capital and its lack of availability for entrepreneurial firms, and an education system that trains people to seek jobs rather than create them differentiate India from Bangladesh and Vietnam, with whom India has to compete. The authors’ hope that artificial intelligence will create 100 million jobs in bot-training, data validation, blockchain, and YouTube channels in the next three to five years, which seems far-fetched.

 

The authors could have been more careful in their definitions in some places. The illustrative calculation shown for the poor savings of a middle-class family with an income of ₹50 lakh at ₹5 lakh, nets off ₹22 lakh EMIs for asset (home loans and car) acquisitions as expenditure. These EMIs are post-investment savings. There is a mix-up between cash flow and savings.

 

Throughout the book, there is confusion between families and individuals. The unit of account in tax filing or employment multiplier is the job or individual—not the family. Hence, to say that the earnings of 40 million middle-class families (tax filers) support the livelihood of 200 million families based on a multiplier of 2.5 stretches both arithmetic and concept.

The reviewer is the author of Making Growth Happen in India