There's an economic 'boom' coming to India very soon. Why the scare quotes, you ask? It's because, like the previous boom of 2002-11, this one too, will only be for a minuscule minority of households, right at the top of India's income scale. If the previous boom was about finance, media, telecom, housing and infrastructure, this one will be driven by tech, tech and tech. Of course, finance will always be there, as both the monarch and under-maiden.
If you are sceptical, you probably don't appreciate how little it takes to make India's economy look good. All you need is for the top 5 million households, in terms of income, to feel things are looking up. That is less than 2 percent of the total number of households in the country.
The reason there was a sense of despondency amongst these 'affluent' families in India is a steady drop in their incomes over the past few years.
A bit of number crunching on official Income Tax data for 2017-18 shows that there were roughly 5 million households in India who earned more than Rs 10 lakh in that year. This number dropped, first because of the economic slowdown and then because of Covid.
Mahesh Vyas of CMIE (Centre for Monitoring Indian Economy) has written that there were only 3 million households who earned more than Rs 10 lakh in 2020-21, significantly lower than the 4 million before the pandemic hit us. Combining these two sources, one can see a rough trend of how at least one million households dropped out of the top bracket between 2018 and 2020, and then another one million slipped during Covid.
These are the buying classes. They are the most vocal of India's citizens. They live in the better localities and condominiums in India's big cities, read English newspapers, send their children to 'good' private schools, and occupy all decision-making posts, whether in government or the private sector. They determine the contours of dominant discourse, which then gets reproduced and disseminated through mass media of all sorts. The media perfectly mirrors their mood. If they are anxious, the media focuses on corruption, global-warming, terrorism, urban naxals and anti-nationals. If they 'feel good', the media focuses on food, fun and frolic.
If two million households have slipped below the Rs 10 lakh threshold over the past few years, it is most likely because the key earning member either took a pay cut, or lost their job and got rehired at a lower salary. Some of these families might also have small businesses, or are medium-sized traders. The economic slowdown since mid-2018 has affected their margins and pushed some of them below the top earnings bracket.
What does it take for them to sense that things are improving? There were about 18.1 million white collar jobs in India in April 2020, which dropped sharply to just 13.8 million one year later. If one assumes that about 15% of these were top-tier jobs, fetching more than Rs 8-10 lakh a year, then roughly 2.7 million people with white collar jobs earned enough for their household income to be more than Rs 10 lakh. Since there are an average of 1.25 earning members per household, that works out to roughly 2 million households with well-paid white collar jobs. Since there were about 4 million such households (earning over Rs 10 lakh) in 2020, we can assume that the remaining affluent households were either self-employed or owned businesses. Using the same assumptions for April 2020, we can say that roughly 1.6 million households with white collar jobs earned over Rs 10 lakh in April 2021, and about 1.4 million business households were in the same bracket.
It is clear from these numbers how little one needs for a 'feel-good factor' to develop at the top of the economy.
For starters, approximately 400,000 households holding 500,000 white collar jobs need to feel optimistic about their future earnings. That is all. And for that to happen, all one needs is just 25% of them to get better job offers. This will immediately unleash a competition amongst employers to retain talent and push up all salaries, across the board, even for those who are unlikely to get new jobs. That's because despite variable pay and performance bonuses, most corporates operate with a basic pay scale system. When some people are paid more, the entire pay-scale structure moves upwards.
The big salary boosts are already happening in any job that is related to tech. A report by staffing firm XPheno estimates that there were 285,000 open positions for white collar jobs in September, which is 60% more than last year. Much of this is coming from the IT/ITes sector, including ecommerce, fintech, BFSI (banking, financial services and insurance) and EdTech.
The stock market boom has also improved job prospects for those who work in the financial sector. Even non-tech firms are hiring tech people to keep pace with changing work-environments. More and more young tech professionals are switching jobs as they get better offers. XPheno estimates that the attrition in the IT sector is about 16-20%, which means one in every five to six employees are moving to more attractive jobs.
These people will inevitably spend more and buy more. This in turn will boost businesses that cater to them, and business households whose earnings had slipped will also gain. We might not recognise this immediately, just as it took a couple of years when the previous boom began, for its patterns to emerge clearly.
This new generation of white collar professionals, who make their money in the 'new' AI-driven tech and new types of finance (e.g., crypto, fintech), might approach consumption in a very different way. They might not want to possess things and prefer just to use them. So, we might not see them buying cars or houses or even white goods. Instead, their spending might show up in things that we do not expect right now - hotels turned into high-end serviced apartments, luxury car rental services, expensive subscriptions to websites, streaming services and niche e-products, memberships of gyms and clubs, the internet of things. Businesses, especially in the service sector, will also have to adjust to this new kind of consumption demand, and reinvent themselves to make the most of it.
Of course, this new boom at the top will be driven entirely by the money that has flown into start-ups, ecommerce and tech companies, whether as direct financing from funds or from money raised from the capital markets. One could argue that these companies don't really make any money and their valuations are driven entirely by the cash they burn to acquire new customers. In a sense, this is a consumption bubble subsidised by finance capital, and it will collapse when investors begin to demand earnings.
But is that very different from the previous boom period of 2002-11? That too was driven entirely by finance - first by the global stock market boom, and then by huge loans given by public sector banks, and finally by two years of heavy fiscal spending by the UPA government. I have argued elsewhere, that this financial bubble led to a capital formation bubble - building of productive assets and infrastructure - that was way beyond the potential consumption demand in the economy could sustain. This coming 'boom' will also be a bubble that will directly benefit the top 1-2% of households in India, and at best have a positive multiplier effect on the top 10%. As always, the remaining 90% will continue to barely keep their nose above water.
(Aunindyo Chakravarty was Senior Managing Editor of NDTV's Hindi and Business news channels.)
Disclaimer: The opinions expressed within this article are the personal opinions of the author. The facts and opinions appearing in the article do not reflect the views of NDTV and NDTV does not assume any responsibility or liability for the same.