Top priorities for the middle-income group are having a correct financial plan, keeping themselves updated with the emerging technologies and equipped with the skills needed to ace one’s performance
The middle-income group of the country is one of the most important income classes as they are the ones who are amongst the most affected by the policies implemented by the government. In order to understand the situation related to this group, let’s throw some light on what the middle-income group means, the middle-income trap and more.
Going by different academic researches, the middle-income group in India is often ignored group even though their presence is acknowledged. Driving consumer growth and being a big market for consumer durables are amongst the varied reasons that make the middle-income class a very important section of the society.
Having the capability of bringing about major economic and social reforms, the middle-income group needs to be analysed in comparison to the high-income and lower-income group. Having a secured flow of income just enough to overcome the financial crisis makes a group of people belong to this class.
Apart from the economic aspect, there are different aspects pertaining to culture, etc. which differentiate them.
Middle income trap is a situation where a country reaches a certain income level and gets stuck at that. We can say that the middle-income class is becoming working poor as one sudden event relating to illness or loss of job would result in them depending on a ‘food bank’. The current generation of middle-income class knows how to spend but has no idea how to save as they are often found purchasing an expensive phones on EMIs or a luxurious sedan on a loan.
The intention is not to question the lifestyle but the cost associated with it. Is middle-income class just following this lifestyle based on credit? Some lines by Robert Kiyosaki need a quick mention here- “The rich buy assets. The poor only have expenses. The middle class buy liabilities they think are assets.”
World Bank’s report
In the last two decades, IT and ITeS helped millions of Indians lift themselves from poor class to the new middle class. However, going by the trend, middle-class is becoming the new poor class. According to a report by the World Bank, India’s per capita income between 2000 and 2011 was increased with CAGR around 11.5 per cent, similarly between 2011 and 2016 increment was only 3.03 percent.
On one hand, middle-income class has emerging lifestyle expenses, and on the other, they are bound by several limitations. In order to harp on new opportunities, the middle-income class needs to upgrade their skills according to industry needs.
Skills related to artificial intelligence, data technology, etc. are core proficiencies needed for Industry 4.0. Employment opportunities are plenty but the number of skilled persons is less as there is lack of proper guidance.
Is a software developer well-equipped to adopt machine learning and platforms, such as Python or R? Is an operations/quality analyst of a multinational company equipped to acquire emerging digital media skills?
These are some of the questions, which need to be answered to find out how different business roles are changing. Few decades back, we observed a similar trend among factory workers. Jobs in factories and public agencies back then were considered more reputed and the working class was known as average middle class.
Unfortunately, factory workers are considered amongst the labour class in today’s times. Why? Because factory workers couldn’t keep pace with the emerging new technologies. Similar situation is being faced today by the IT and BPO sector employees.
In the past decade, we have observed that the inequality gap has increased. A major mistake committed by the middle-income group is that they don’t handle their personal finance the right way. Primarily depending on salary for regular income and not exploring the available financial instruments as per the guidance of an expert financial planner is also one of the factors that contributes towards increasing the inequality gap.
The above-mentioned observations back up the claim that the middle-income group is becoming working poor.
Keeping the optimist within us alive, we must believe that the current situation can be changed. Top priorities for the middle-income group are having a correct financial plan, keeping themselves updated with the emerging technologies and equipped with the skills needed to ace one’s performance in today’s highly competitive era.(The author is Senior Manager at Capital Quotient, a SEBI-Licensed Registered Investment Advisory firm.)
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