Urban India's rising resentment

Business Standard, Mumbai - August 20, 2011

There is resentment building up in the "aam janta" in urban India that the government and policy-makers need to understand better. If for nothing else, at least to promote more empathy and to handle the situation more sensitively to prevent the anger from spilling over onto the streets. In India, big waves are often caused by confluences of little ripples, and there is one brewing that needs to be diffused.

The increase in petrol prices, the likely steep rise in LPG expenditure, the increase in the EMI burden and prolonged food inflation, all coming together, destabilises most sections of urban India, barring the very rich and the very poor. The least of the problem is that people will now, like in the old days, have to watch their budgets more closely and make tough "not buying" decisions. That would perhaps be the case with the top 30 per cent of urban income earners. For the bottom 30 percent, the consumption journey had just begun through occasional foot-board traveling on the consumption train. They now have to get off the train altogether and they are resentful. Even more resentful is the 40 per cent in the middle, the new consuming class (please note, this is not what we usually refer to as the "middle class;" that is mostly the top 30 per cent, based on our mental models of it, World Bank definitions that some analysts use and so on). Over the last decade, they have clambered from the foot board into the compartment of the consumption train and, even if in second class, they have found a place to sit.

Now, they are forced back to footboard travel and fear that they may not be able to cling there for long. Take the example of Raju, a typical consumer of this socioeconomic class, upset since he sees his life (not his lifestyle) getting demoted. A personal fitness trainer and yoga instructor, he charges by the hour and has clients all over the city, mostly hard-working men and women with limited time. He charges a price premium not just because he is good at what he does but also because with the help of his cellphone SMSes and motorcycle, he adjusts class timings hour-on-hour to suit his clients' ever - changing schedules (held up in traffic / meeting running late /arriving on an earlier fight can do class and so on.) His bike is his pride and joy and he has bought a new model, more pricey than the model he could easily afford, because the EMI difference was not much and because he wanted a model that would remain reasonably the "latest" for the next three years. Like companies, he went in for value addition to his life rather than value engineering because the future looked good and the past experience showed that prices were stable or coming down while his income was going up, as long as he was willing to work harder and longer. He bought a small flat in the suburbs (on loan), sends his kid to a good nursery school, and the family is in the habit of affordable indulgences at least once a week when they all go out on the bike and eat out and buy a few things. He has also been saving a bit for durables that he planned to buy and for his child's education at some later date. Now his entire financial and lifestyle model is under threat and he has no inflation indexed income. True he can raise rates; but then he finds that his customers have a psychological price-threshold as well, and do fewer classes a week due to the guilt of spending so much on themselves. He says, "People are getting very angry because what we have now is not guaranteed and adjusting life to the new prices in not as easy."If telecom and electricity prices go up as well, then his life will be downgraded even further.

Add to price resentment, the heightened upset about corruption. In an earlier column, I wrote that the middle class was upset because in their pragmatic transaction of tax payer - public goods supplier with the state, the state has not delivered. Several people mailed, explaining that I had not understood the emotion behind the anger against corruption. One of them said it all - what about the demeaning humiliating experience of having to grease every palm, or not get your work done? Another younger person said bribery is money paid to bend rules; but what about "speed money" that is extorted for things that are due in the normal course to the normal citizen? The UID, another mail said, may be great at fixing certain kinds of corruption but it will certainly not protect the aam aadmi from such extortion "no more that it will cook my dinner or do my child's homework."

A favourite analyst's chart for years now has shown how disposable income is rising faster than total income because expenses were not increasing in the same proportion. However, we have been through a very sweet spot in our economy for the last decade, with incomes rising, prices coming down (due to competition and reduction of duties), interest rates and inflation being low, and subsidies untouched. We are now entering a phase in which disposable income may grow slower than total income, as subsidies are withdrawn and people eschew bad quality low-priced public goods in favour of more expensive private providers. This is a situation to watch carefully because the aam aadmi does not understand macro-economic choices and policy compulsions, and no one is explaining it to him properly.