Sharp fall in savings of the middle class in India

Outlook carried an article about the rising living costs that is hurting the large middle class in India. According to Wiki,

The middle class is a class of people in the middle of a societal hierarchy. The middle class is the broad group of people in contemporary society who fall socio-economically between the working class and upper class.

How big is the middle class in India?

According to McKinsey those who earn between Rs 200,000 and Rs 1,000,000 qualify to be in the middle class. India is expected to have a whopping 600 million middle class population by 2030.

Middle Class in India, photo courtesy

Some interesting numbers from the Outlook article,

  • 150 million earn between Rs 340,000 and Rs 1,700,000 per annum. Year on year this segment is growing by 13%.
  • 800 million earn between Rs 45,000 and Rs 340,000 per annum. Year on year this segment is growing by 3.2%.
  • 89% of tax payers earn less than Rs 500,000 (about $10k) per annum. The maximum tax burden is on the lower middle class (earning between Rs 200,000 and Rs 500,000)
  • Corporate India gets subsidies worth Rs 500,000 crore, food subsidy alone is Rs 75,000 crore per annum.
  • Middle class gets about Rs 45,000 crore as tax relief.
  • With the rising cost of living middle class has cut down on taking loans. It has reduced from 17% in 2010-11 to 12.1% in 2011-12. Sectors like real estate and auto would be seriously hit.
  • Now the worrying number: Household saving rate has reduced from 25.4% in 2009-10 to 22.8% in 2010-11. This is mainly happening because families are eating into savings to maintain lifestyles.

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