Rising Vulnerability of India’s Middle Class

Syllabus: GS3/ Economy

Context

• India has reduced income-based poverty, but widespread economic vulnerability and limited upward mobility persist, shifting the policy focus from poverty alleviation to income security and mobility.

Changing Approach to Welfare Measurement

• Traditional poverty measures classify individuals as poor or non-poor based on a fixed income threshold.
• The World Bank has proposed measuring welfare by assessing the distance from a reasonable standard of living.
  • This approach treats well-being as a continuum rather than a binary condition.
  • It helps in identifying vulnerable populations who are just above the poverty line but lack economic stability.

Trends in India’s Growth Experience

• Decline in Poverty but Rise in Vulnerability: A large number of individuals have crossed the poverty line due to economic growth, but many of these continue to live with low and unstable incomes.
• Emergence of a Vulnerable Middle Class: India is witnessing the expansion of a “vulnerable middle” rather than a stable and secure middle class.
  • This group is characterised by limited savings, lack of social protection, and uncertain employment conditions.
• Informalisation of Workforce:  A significant proportion of India’s workforce continues to be employed in the informal sector lacking job security, written contracts, and social security benefits.
• Sectoral Imbalances in the Economy: The manufacturing sector has not expanded sufficiently to absorb surplus labour from agriculture.
  • A significant share of the workforce remains engaged in agriculture despite its low contribution to GDP.
• Rising Inequality: Income and wealth inequality have increased alongside economic growth.
  • A disproportionate share of national income is concentrated among the top income groups.

Socio-Economic Implications

• Labour Market Distress: High levels of unemployment, particularly among youth and educated individuals, persist.
• Financial Fragility of Households: Household financial savings have declined while debt levels have increased.
• Human Development Challenges: Indicators such as child malnutrition and stunting remain significant concerns.
  • Poor health and nutrition outcomes affect long-term productivity and economic mobility.

Initiatives taken by Government

• Pradhan Mantri Kaushal Vikas Yojana (PMKVY): The scheme aims to provide industry-relevant skill training to youth in order to improve employability and enhance job opportunities.
• Production Linked Incentive (PLI) Scheme: The government has introduced the PLI scheme to boost domestic manufacturing and integrate India into global value chains, which can generate large-scale formal employment if effectively implemented.
• Digital Public Infrastructure (DPI): Platforms such as Aadhaar, UPI, and DBT have improved financial inclusion, reduced leakages, and enabled direct income support, thereby enhancing household resilience.
• e-Shram Portal: The government has created a national database of unorganised workers to enable targeted delivery of social security benefits.

Way Ahead

• The government should promote labour-intensive manufacturing sectors such as textiles, food processing, and electronics assembly to generate large-scale employment opportunities.
• The government should increase public investment in education in order to improve learning outcomes and employability of the workforce.
• The government should strengthen the Direct Benefit Transfer (DBT) system to provide timely and targeted financial support to vulnerable households.

Source: TH