For the past few months, the Indian economy has shown visible signs of slowdown in consumer demand. Whether it is the sale of SUVs, purchase of new homes, or the booming travel industry, demand is weakening across sectors. The biggest concern now being raised is whether India’s middle class is cutting back on spending—and if so, why?

This concern was recently highlighted by Saurabh Mukherjea of Marcellus Investment Managers in his latest blog, where he issued a strong warning about the state of middle-class finances. According to him, since Diwali 2023, corporate income growth has been faltering, and the primary reason is the declining spending power of India’s middle class.

Supporting this claim, data from the Reserve Bank of India also paints a worrying picture. Household savings in India have fallen to their lowest level in 50 years. The last time savings were this low was in 1977. Naturally, when savings decline, the ability to spend also falls, and this is now clearly visible in the economy. The demand for SUVs, the once-booming housing sector, and overall corporate earnings have all lost momentum. Listed companies on the Nifty index have even reported one of the steepest declines in earnings growth for FY2025.

So, why exactly is the middle class feeling the squeeze? Mukherjea’s blog highlights three key reasons.

First, the slowdown in job creation. Before 2020, white-collar jobs in India doubled every six years. Today, that growth rate has collapsed to just three percent. At this pace, it will now take nearly 24 years for jobs to double. Industries such as IT, software, and retail—which form the backbone of middle-class employment—are no longer generating opportunities at the earlier pace.

Second, the decline in real wages. Salaries have been increasing on paper, but inflation has risen much faster. Over the past eight years, average salaries for employees have failed to keep up with inflation. As a result, white-collar workers are effectively poorer in real terms today than they were a decade ago, despite nominal salary hikes.

Third, the growing impact of AI and automation. Artificial intelligence is often accused of replacing jobs, and Mukherjea points out that this is no longer a distant concern. Using TCS as an example, he highlighted that India’s largest IT company recently cut 12,000 jobs. If such significant job losses can happen in a leading IT giant, the effects on other industries are bound to be even more severe.

Taken together, these three factors raise a serious alarm. India has around 40 million white-collar professionals, and their spending helps sustain nearly 200 million jobs across the economy. If this section of society is forced to cut back due to financial stress, consumption levels will fall sharply. And without consumption growth, India’s economic growth trajectory could face significant challenges.

This raises an important question: is the middle class, long seen as the engine of India’s growth, now under real financial strain? And if yes, will this become one of the biggest threats to India’s economic future?

As the debate continues, one thing is certain—the financial health of the Indian middle class will play a decisive role in shaping the country’s growth story in the years ahead.