India’s Middle Class Is Bigger Than Ever—So Why Does It Feel Poorer?

Why India Needs a New Definition of the Middle Class

By the Editorial Board
Salt Global News

India is frequently celebrated as the world’s fastest-growing major economy. GDP continues to expand, tax collections have reached record highs, digital payments are transforming commerce, and millions of citizens have entered the formal financial system.

Yet behind these impressive economic indicators lies a growing contradiction.

Millions of Indian families considered “middle class” increasingly feel financially insecure. They earn more than previous generations, yet struggle to save. They own homes, but spend decades repaying mortgages. They invest heavily in their children’s education, yet worry constantly about healthcare costs, retirement and job security.

The question policymakers, economists and financial institutions should ask is not how many Indians belong to the middle class.

The real question is whether India is defining the middle class correctly.

The Problem with Gross Income

Most discussions about India’s middle class rely almost entirely on annual household income.

Depending on the organisation, families earning between ₹7 lakh and ₹20 lakh annually are generally described as middle class.

This approach is convenient.

Unfortunately, it is also incomplete.

Gross income says very little about a family’s actual standard of living.

A household earning ₹15 lakh annually in Mumbai faces a vastly different financial reality from a household earning the same income in a smaller city such as Indore, Coimbatore or Lucknow.

Yet both are placed in the same statistical category.

This ignores one of the most important principles of economics: purchasing power matters more than nominal income.

The Metro City Reality

Consider a typical family of four living in Mumbai, Delhi, Bengaluru or Hyderabad.

Both parents work.

They have two school-going children.

One parent commutes daily.

The family is repaying a housing loan and a vehicle loan.

Their annual gross income is ₹15 lakh.

On paper, they appear comfortably middle class.

In reality, their annual financial commitments may look like this:

The total approaches ₹16 lakh.

Even allowing for variations in lifestyle and schooling, many urban households find that nearly all of their income is committed to essential expenditure.

Savings become modest.

Unexpected medical emergencies become financially disruptive.

Retirement planning is postponed.

This is hardly the image traditionally associated with a secure middle-class lifestyle.

Inflation Is Different for the Middle Class

Official inflation measures are based on broad consumer baskets.

Middle-class families experience inflation differently.

Education fees consistently rise faster than general inflation.

Healthcare costs have increased substantially.

Urban housing remains expensive.

Electricity tariffs, maintenance charges, insurance premiums and transport costs continue to rise.

These are not discretionary purchases.

They are essential expenses.

Consequently, many families experience a much higher effective inflation rate than headline inflation suggests.

The Missing Measure: Disposable Income

Around the world, economists increasingly focus on disposable income rather than gross earnings.

Disposable income is what remains after taxes and unavoidable financial commitments.

This provides a far better measure of financial well-being.

Two households earning identical salaries may have dramatically different disposable incomes depending on housing costs, family size and debt obligations.

The first household may save 25 per cent of its income.

The second may save almost nothing.

Treating both as equally prosperous is misleading.

Housing Has Become the Defining Challenge

Housing is now the single largest expense for many urban Indian households.

Property prices in major metropolitan areas have risen much faster than incomes over the past two decades.

For many first-time buyers, home ownership requires mortgage repayments extending over twenty or even thirty years.

Owning a house no longer guarantees financial comfort.

Instead, it often represents decades of financial commitment.

Education: The Largest Private Investment

Education has become one of the biggest financial responsibilities for Indian parents.

Private school fees, coaching classes, extracurricular activities and university preparation now consume a significant proportion of household income.

Parents increasingly view education as an investment rather than an expense.

The pressure to provide world-class opportunities often comes at the cost of lower savings and delayed retirement planning.

India’s Middle Class Deserves Better Measurement

India has transformed dramatically over the past three decades.

The methods used to measure the middle class should evolve as well.

Instead of relying solely on gross household income, policymakers should adopt a broader framework incorporating:

• Disposable income after taxation.
• Household size.
• Housing costs.
• Education expenditure.
• Healthcare costs.
• Regional cost-of-living differences.
• Savings capacity.
• Debt burden.

Such an approach would produce a far more accurate picture of household financial health.

Introducing an Indian Middle-Class Living Standard Index

Salt Global News proposes that India consider developing an Indian Middle-Class Living Standard Index (IMLSI).

The index would combine five key indicators:

1. Net disposable household income.
2. Housing affordability.
3. Education and healthcare affordability.
4. Household savings and emergency financial resilience.
5. Regional purchasing power.

Such an index would help governments design fairer tax policies, allow economists to assess real living standards more accurately and enable businesses to understand consumer demand with greater precision.

A Growing Economy Needs a Stronger Middle Class

India’s aspiration to become a developed economy by 2047 will depend not only on GDP growth but also on the strength of its middle class.

A confident middle class invests, innovates, consumes and creates opportunities for future generations.

A financially stretched middle class becomes cautious, reduces spending and delays investment.

Economic growth ultimately depends not on statistical income classifications but on real purchasing power.

India’s middle class has long been recognised as the backbone of the nation’s economic progress.

Yet many families today find themselves caught between rising aspirations and rising costs.

Their challenge is not a lack of income alone—it is the shrinking gap between earnings and essential expenditure.

The time has come to redefine the Indian middle class.

Not by what families earn.

But by what they can actually afford.

Only then will economic statistics truly reflect the realities of modern India.

Editorial Board
Salt Global News