Rising inflation forcing middle class to curtail spendings
Bangalore: When we talked to Mamtha Vishnoi, a house-wife, she detailed how her household spending has twisted out of control in recent months. According to her, she has been trying every other way to cut back on the expenditures of her family, but still she is unable to save any money. Unfortunately, this is not the case with Mamtha alone. Of late, the upward spiraling inflation has pinched all the middle class families across the country.
According to data based on the National Survey of Household Income and Expenditure, the middle class households in India account for almost 34 percent of aggregate income and 39 percent of aggregate consumption. About 54 percent of their income is spent on food and about 5-7 percent each on housing, education, clothing, durables, health, transport and other nonfood items. But now, their spending on food has gone up to 65-67 percent of their income. To cope up with this, they are making even greater sacrifices than they are normally used to. However, it is hardly making any difference on their savings.
Another survey titled 'Impact of Inflation among the Middle Class' conducted by Assocham finds that finds that middle class consumers across the country have cut their spending on entertainment, shopping and eating out by 65 percent to manage their limited monthly budgets. These consumers used to spend about 
5000 to 6000 monthly before the high inflation set in. But, now they spend about 2,800, which is nearly a 65 percent cut from earlier.
The Indian consumption story will also get affected by what is happening to middle income people in the country. It will lead to down trading, with consumers buying cheaper products as they seek to make up for rising prices.
Today, only 15 percent of aggregate household savings are accounted for by the Indian middle class. As the spending on food will increase, savings will come down or even evaporate. Unfortunately, since the contribution of this class towards overall household savings is low, their drop in savings will hardly visible at the aggregate level.
While consumption attitudes may be severely affected in Middle India, life will continue as usual for the high income groups. High income group seems to have been least affected as there is nearly no change in their spending habits. On average people in this group were spending about 20,000 per month earlier and even now the spending remains the same. Because of this difference, we could see a schizophrenic situation with a widening gap in consumption and attitudes amongst the higher class and middle class people.
The global credit ratings agency S&P has warned that the high rate of price rise could derail India's growth. According to it, although the government has started to tackle the problem of inflated subsidies, these remain high and prone to the volatility in global commodity prices, especially that of fuel. Food inflation was 9.5 percent for the week ended March 19. The overall inflation in February was 8.31 percent.
If middle class people are suffering so much due to Inflation, what about poor and below poverty line citizens? All this leads to a spiraling effect as it becomes more difficult for poor people to improve their conditions and lead a life where they are not devoid of basic amenities. It is high time to address this issue of rising inflation with urgency and keep it in suitable limits. Otherwise, there could be a slowdown in consumption, which will also affect the well-being of the society.
5000 to 6000 monthly before the high inflation set in. But, now they spend about 2,800, which is nearly a 65 percent cut from earlier.
The Indian consumption story will also get affected by what is happening to middle income people in the country. It will lead to down trading, with consumers buying cheaper products as they seek to make up for rising prices.
Today, only 15 percent of aggregate household savings are accounted for by the Indian middle class. As the spending on food will increase, savings will come down or even evaporate. Unfortunately, since the contribution of this class towards overall household savings is low, their drop in savings will hardly visible at the aggregate level.
While consumption attitudes may be severely affected in Middle India, life will continue as usual for the high income groups. High income group seems to have been least affected as there is nearly no change in their spending habits. On average people in this group were spending about 20,000 per month earlier and even now the spending remains the same. Because of this difference, we could see a schizophrenic situation with a widening gap in consumption and attitudes amongst the higher class and middle class people.
The global credit ratings agency S&P has warned that the high rate of price rise could derail India's growth. According to it, although the government has started to tackle the problem of inflated subsidies, these remain high and prone to the volatility in global commodity prices, especially that of fuel. Food inflation was 9.5 percent for the week ended March 19. The overall inflation in February was 8.31 percent.
If middle class people are suffering so much due to Inflation, what about poor and below poverty line citizens? All this leads to a spiraling effect as it becomes more difficult for poor people to improve their conditions and lead a life where they are not devoid of basic amenities. It is high time to address this issue of rising inflation with urgency and keep it in suitable limits. Otherwise, there could be a slowdown in consumption, which will also affect the well-being of the society.
