Inflation is slowly killing the middle class!

Introduction

Over the past several years, India’s middle class—which has traditionally been viewed as the engine of the nation’s economic growth—has faced unprecedented financial pressure. Persistently high inflation, stagnant wage growth, mounting debt obligations, and the soaring cost of urban living have collectively undermined the savings capacity and purchasing power of millions of households. As a result, this demographic segment is frequently described as “bleeding quietly,” with little recourse to government bailouts or robust safety nets. The emergence of the so-called “pouch economy,” wherein consumers opt for smaller, economy-sized packaged goods to stretch their budgets, further underscores the extent of financial distress. This essay examines the primary drivers behind the middle-class squeeze—stagnant incomes, debt burdens, inflationary pressures on essentials, and escalating living costs—drawing on recent data and commentary from reputable sources.

1. Stagnant Wage Growth Versus Skyrocketing Prices

One of the core challenges facing India’s middle class is the yawning gap between wage growth and inflation. In a viral LinkedIn post, Ashish Singhal, CEO of PeepalCo, termed middle-class salaries “the biggest scam no one talks about,” noting that households earning between ₹5 lakh and ₹1 crore saw annual income growth of only 0.4 percent over the last decade, while food prices soared by nearly 80 percent in the same period (The Economic Times, Financial Times). This disconnect has been particularly acute in urban India, where inflation-adjusted wages remain below historical averages, even as consumers continue to face double-digit price increases on essential items.

The Financial Times highlights that households in this income bracket have taken on unsecured loans—often through digital lending platforms—to bridge the shortfall between sluggish pay packets and rising living costs. As a result, household debt has climbed from 35 percent to 43 percent of GDP since 2020, while national savings rates plunged to 50-year lows (Financial Times). In the absence of proportionate salary increments, many middle-income families are forced to prioritize immediate expenses—rent, school fees, groceries—over long-term financial planning, effectively eroding their capacity to accumulate savings or invest for the future.

2. Mounting EMIs and the Accumulation of Debt

In parallel with stagnant incomes, the rapid expansion of retail credit has saddled middle-class households with large Equated Monthly Installments (EMIs). Singhal’s LinkedIn narrative underscored how many families are “still flying once a year, still buying a phone, still paying EMIs,” but are compelled to forgo medical checkups or skip routine savings to meet their loan obligations (The Economic Times). This phenomenon is exacerbated by the easy availability of personal loans, credit cards, and vehicle financing, which—while enabling lifestyle upgrades—have also led to spiraling debt that outpaces income growth.

The Financial Times further warns that aggressive debt collection tactics and rising delinquencies in microfinance and digital lending platforms have intensified psychological stress among borrowers. Regulatory measures—such as higher risk weights on personal loans instituted by the Reserve Bank of India—aim to curb excessive lending but have, in some cases, restricted credit for those already burdened by debt, pushing them into deeper financial distress (Financial Times). Consequently, the middle class finds itself trapped between unrelenting EMI outflows and the urgent need to allocate funds toward essential consumption, leaving minimal room for discretionary spending.

3. Persistent Food Inflation and Eroding Purchasing Power

Even as core inflation rates in India have hovered within the Reserve Bank of India’s target band, food inflation has consistently remained high—often exceeding 8 percent on an annual basis. According to a November 2024 Reuters report, rising food prices alone forced urban households to tighten their belts significantly, thereby slowing down consumer demand for non-food items and dampening retail sales growth during festive seasons (Reuters). Food items such as onions, vegetables, and staples have experienced periodic supply shocks—driven by erratic weather patterns and logistical bottlenecks—further inflating costs at the point of sale.

These elevated food prices compound the impact of stagnant wages. The Reuters piece notes that with no commensurate increase in income, middle-class consumers have shifted preferences toward cheaper substitutes, reducing expenditure on discretionary categories such as dining out, apparel, and personal care. As a result, companies across the consumer goods sector have reported slower same-store sales, forcing them to introduce smaller, more affordable pack sizes—giving rise to what is colloquially termed the “pouch economy” (Reuters). For many middle-income families, the shift to economy-sized goods is a survival strategy rather than a choice, reflecting deep-seated concerns about sustaining household budgets.

4. Surging Urban Living Costs and the Rs 1 Crore “Survival” Benchmark

Living expenses in India’s Tier-1 cities have reached staggering levels. Chartered accountant Nitin Kaushik’s analysis revealed that merely surviving in cities like Mumbai, Delhi, or Bangalore—covering rent, groceries, school fees, and transportation—can cumulatively amount to ₹1 crore over time, excluding any discretionary or luxury spending (The Economic Times). Out-of-pocket expenses for housing alone can reach approximately ₹30 lakh over eight years, while groceries may tally another ₹30 lakh over two decades. School fees and transportation costs add substantially to the total.

Given these figures, households—even those with relatively high salaries—find themselves treading water. A separate ET report detailed how a Bengaluru resident with a monthly budget of ₹70,500 struggled to balance rent, utilities, and daily expenses, prompting him to solicit cost-cutting suggestions on social media. His plagued monthly expenditure highlighted common middle-class dilemmas: from exorbitant rent outlays to quotidian costs like high rates for fruits and vegetables (The Economic Times). Consequently, even dual-income families face constraints in building emergency funds or saving for retirement, as regular household outflows leave little or no surplus.

5. The Rise of the “Pouch Economy” and Shifts in Consumption Patterns

The confluence of high food inflation and constrained disposable incomes has given rise to the “pouch economy”—a term denoting the proliferation of smaller, more affordable packaged goods targeted at budget-conscious consumers. Producers across FMCG (Fast‐Moving Consumer Goods) segments now emphasize sachet- and pouch-sized offerings in categories ranging from shampoo and cooking oil to toothpastes and snacks. While such packaging democratizes access to branded products, it simultaneously underscores financial precarity: families that once bought products in bulk or standard sizes are now compelled to purchase daily-consumption items in single-use pouches to manage cash flows.

A recent Instagram reel by the RJ Kalpesh Vaya referred to India’s evolving “pouch economy,” suggesting that it reflects both a shift in consumer mindset and a response to tightening household budgets (Instagram). However, for many, this phenomenon is less about convenience and more about necessity. When a household’s daily grocery bill is squeezing out discretionary spending, the incremental savings from sachet-sized ketchup or shampoo become indispensable. The pouch economy thus stands as a stark indicator of the broader financial duress faced by middle-class Indians.

Conclusion

India’s middle class—long hailed as the nation’s economic backbone—is confronting a multifaceted crisis. The stagnation of real incomes, relentless inflation, ballooning debt burdens, and escalated urban living costs have combined to erode purchasing power and undermine savings. Against this backdrop, the proliferation of sachet- and pouch-sized consumer goods signals a broader transformation: a shift from aspirational consumption to one driven by necessity and tight budgets. Unless wages start to keep pace with inflation, credit expansion is balanced with borrowers’ repayment capacity, and structural interventions are made to stabilize food and housing costs, the “quiet bleeding” of the middle class may intensify.

In the interim, policymakers and corporate stakeholders must recognize this demographic’s unique vulnerabilities. Measures might include targeted subsidies for essential commodities, calibrated credit policies to prevent over-leveraging, and incentives to promote affordable housing in Tier-1 cities. Failure to address these systemic challenges risks not only dampening India’s consumption-led growth narrative but also eroding long-term financial security for millions who aspire to a stable, upwardly mobile future.

References

1. Ashish Singhal, “EMIs, Inflation, No Savings: The Indian Middle Class Is Bleeding Quietly,” The Economic Times, May 22, 2025. (The Economic Times)
2. “India’s Middle-Class Debt Crisis Threatens Growth,” Financial Times, April 16, 2025. (Financial Times)
3. “India’s Middle Class Tightens Its Belt, Squeezed by Food Inflation,” Reuters, November 13, 2024. (Reuters)
4. Nitin Kaushik, “Living in Mumbai, Delhi or Bangalore? CA Proves You Are Spending Rs 1 Crore ‘Just to Survive,’” The Economic Times, May 16, 2025. (The Economic Times)
5. “Bengaluru Employee Gets Suggestions on How to Cut Living Costs,” The Economic Times, May 27, 2025. (The Economic Times)
6. RJ Kalpesh Vaya, “Pouch Economy of India??,” Instagram Reel (posted February 2025). (Instagram)