We’re poor? That’s rich!

BySashikala VP

May 22, 2020

If urban professionals earning above Rs 50,000 a month are lower middle class, how should we categorise those below this level? The finance minister would perhaps call themselves poor

It was quite a shocker when Union Minister of Finance Nirmala Sitharaman called those in the income bracket Rs 6-18 lakh per year as those in the “lowest strata of the middle-income group”. This statement was made while announcing the details of the Rs 20 lakh crore ‘Atmanirbhar Bharat’ economic package.

We spoke with the economist Prof. S Mahendra Dev, Director and Vice Chancellor, Indira Gandhi Institute of Development Research and expert panel member of the C Rangarajan committee, to know if the statement could be right. He said “She (the finance minister) may be looking at the per capita income in the country, but even then, you cannot call that bracket as the lowest middle class”.

There. What the finance minister said exactly is this: “We wish to give the middle income group and that too the lowest strata of the middle income group who get only 6 lakh to 18 lakh annual income… so they are probably above poverty line all right and slightly over that but clearly the middle class, the lowest rung of middle class…for them there is a credit-linked subsidy scheme which was introduced by government of India in May 2017. This was operationalised from 2017, but was extended till only March 31, 2020. This scheme benefits a lot of people who want to have simple affordable houses. So, this scheme is being extended to March 2021.”

Now, we are not looking at the scheme but just at what the finance minister said and how worse off the country is now with the Covid-19 lockdown.

Firstly, let’s take the lower bracket she mentions of Rs 6 lakh. A person in this bracket would be earning about Rs 50,000 a month. The person earning Rs 18 lakh per annum would be earning Rs 1,50,000 a month. Is this the “lowest rung of middle class” in India?

In a country where the poor are judged as those which live with less that Rs 32 in rural areas and Rs 47 in urban areas, according to the C Rangarajan committee report of 2014, the number quoted by the finance minister is way off the mark. If we look at a salaried person getting Rs 50,000 per month, after tax and even after saving Rs 10,000 each month, he/she would be spending Rs 1,290 each day.

Urban professionals in Delhi who are below this income bracket would find the finance minister’s statement insulting, a blow to their self-perceived privileged position. Sunaina Rathore (name changed), a media professional says she earns less than this. “That makes me a part of the poor group. But I don’t think that’s a proper categorisation. There are in fact so many people I know who have been working for quite some time now and they fall in the Rs 6-18 lakh slab. They have a family with children and they are doing just fine. They definitely shouldn’t fall in the lowest strata. And how can earning Rs 18 lakh per annum be middle income? If this is accepted, then who falls in the upper strata of the middle-income group? Just 5 per cent of the population?”

“Take my father who works in a national bank. Look at our lifestyle. We have a house, cars, education, can afford medical expenses. If all of that falls under what a lower middle class can afford, then I guess our economy is doing great. We are all quite wealthy then”.

Dev, a MedTech Industry professional, also thinks the finance minister’s comments are wrong. “People with Rs 6-18 lakh per annum are doing pretty well. Then there are those who live below the poverty line who can’t afford even three meals a day. There’s a huge gap between these sections.”

Granted, defining the middle class in India has never been easy. A paper published in Economic and Political Weekly by economists Sandhya Krishnan and Neeraj Hatekar titled ‘Rise of the New Middle Class in India and Its Changing Structure’, says that the new middle class is now 600 million strong.

The paper from 2016 categorises those spending between $2 and $4 per capita per day as lower middle class and those spending $6-10 the upper-middle class.

Now the exchange rates are higher, so we will take into account today’s rate for a dollar which is Rs 75. This makes the daily expenses of the lower middle class at Rs 150-300, and upper bracket spending Rs 450-750. Meaning the monthly expenses would be Rs 4,650-9,300 for those living in the lower middle class and the upper bracket would spend Rs 13,950-23,250 monthly.

But even this isn’t right. In 2014, the C Rangarajan Committee had found that India had 363 million poor people. Prof Dev says one can put those just at the poverty line in urban areas as those earning Rs 7,000 per month, with five family members.

He points out that poverty will increase due to Covid-19 and the imposed lockdown, with self-employed and the casual labourers, “Disproportionately affected… Job losses and higher food prices in the urban areas and even in rural areas. In urban areas there will be a kind of new poor because the migrants have lost jobs, but in rural areas as the migrants are going back the wages may decline there and there could be unemployment. Also, remittances have declined to rural areas.” What will also make it worse in rural areas are states removing laws, which will make the people “worse off and more vulnerable.”

But what he lastly points to, which should also be of concern is the new poor which will emerge. He says that while traditionally rural poverty was concentrated on by policy people, covid-19 has made urban areas vulnerable. “Those who were not in the poor category, as they had higher wages will also come under poor category, like courier service workers for example”.

Economist and Emeritus professor at Institute of Development Studies Kolkata, Amiya Kumar Bagchi, says poverty has “greatly increased”. This he says is “not only because of the contraction of productive activities but also because of the loss of employment by millions of workers – blue collar and white-collar workers.”