Indias Middle Class Hits A Breaking Point

TITLE: India’s Middle Class Hits a Breaking Point CHANNEL: Carnegie Endowment DATE: 2026-04-15 ---TRANSCRIPT--- Unabashed. The most unpredictable becomes a headline. The most volatile outrageous behavior, unsubstantiated narratives, a battle of personalities. Welcome to Grand Tamasha, a co-production of the Carnegie Endowment for International Peace and the Hindustan Times. I’m your host, Milan Vaishnav.

For decades, India’s growth story has rested on the spectacular rise of its middle class. But a new book argues that this very group, roughly 40 million income tax-paying households, is now under acute strain. Facing a convergence of job disruption, wage stagnation, and rising debt, the middle class may no longer be the engine of growth it once was. This is the argument made in a new book titled Break Point: The Crisis of the Middle Class and the Future of Work. It is authored by Saurabh Mukherjea along with Nandita Rajhans and Sapna Bhowmick Sarkar. Saurabh is the founder of Marcellus Investment Managers and the author of six previous books. Prior to setting up Marcellus, he was the CEO of Ambit Capital. Nandita is an economist and a small and mid-cap analyst at Marcellus. She is the co-author of a national bestseller, Behold the Leviathan, published in 2024.

MILAN: Saurabh, let me just begin with you to help us kind of frame the argument for our listeners. You know, the book opens up with a pretty big and audacious claim, which is that India’s middle class is facing its most vulnerable moment since 1991, which of course is the kind of dawn of liberalization. Could I just ask you maybe to tell us what makes the current moment a crisis? And what do you see as the core forces driving this kind of sense of calamity?

SAURABH: The reason we said this is the most vulnerable moment since ‘91. We weighed up all the other crises that India had faced. For example, at the turn of the century when the dot-com bust happened in India it hit India pretty hard because already by the year 2000 there was plenty of IT workers in India. Similarly, Lehman Brothers hit India pretty hard. The stock market fell twice as much as Wall Street fell. But this time round, Milan, we are seeing three very different sets of forces unfortunately coming together, colliding to create a multi-faceted crisis for the middle class. And I’ll quickly sort of run through those forces.

The first is around supply-demand dynamics in the white-collar labor market. There’s only about 40 million income tax payers in India who earn between 500,000 rupees at the lower end and 10 million rupees at the higher end. In the context of a 1.5 billion strong economy, 40 million is obviously a very modest number, but that’s how many middle-class income tax payers we have in our country. For this small cohort of people who drive the Indian economy, the IT services sector was the mainstay of job creation. Till about 2015, the IT services sector was adding a million jobs, sometimes 1 and 1/2 million jobs a year. Around 2016-17, that growth started sputtering. And the last 3 years, growth of jobs in the IT services sector has disappeared. And with that has gone the mainstay of new white-collar job creation for the Indian middle class. It might not sound like a catastrophe until you realize that India now adds 8 million graduates a year. Because this is a young country getting younger gradually, each year the number of graduates increases. So, today versus a decade ago, India now produces 25% more graduates today than it did 10-15 years ago. So, 8 million graduates a year joining the labor force, but very few jobs getting created, naturally real wages are getting crushed. As real wages get crushed in what is already a relatively low-income country, it has an obvious impact on quality of life. So, that’s the first force.

The second force is a very idiosyncratic application of social media in India. So, the world over social media has crossed lots of different issues which have been discussed extensively. There are three unique dimensions to how social media has worked out in India. Firstly, we’re the only country in the world, only large economy where mobile data is basically free. So, compared to Europe or America, our mobile data costs are 1/40 or 1/50. Secondly, we are a very young country. A decade ago when mobile data became free in India, the median Indian was a teenager and as there’s plenty of research to show that social media has a far greater impact on younger people than on older people. And the last piece is we’re a very unequal society. So, if on social media you’re showing people the lifestyles of billionaires, Indian billionaires, Bollywood stars, then the vast majority of Indians who don’t have access to that level of income are also seeing what we call an industrialization of aspirations. So, it’s a country where the first dynamic, the supply-demand dynamics, mean real wages are under pressure. Second dynamic around ubiquitous access to social media and the very clever curation of content, mean that hundreds of millions of people who don’t have the financial means are being shown a lifestyle which they simply cannot afford.

And the third layer of what’s happened is through its own genius, through the hard work of policy makers across multiple administrations, India has created a unique tech ecosystem. We call it the Jan Dhan Aadhaar mobile ecosystem. The JAM ecosystem as it’s often referred to. In simple terms, what it means is almost every Indian has a bank account, has a mobile phone, and a unique ID, which means they can go online and borrow. They can borrow 30, 40, 50, 60, 70. We’ve met people who’ve got 700 open loans courtesy JAM. So that’s the technology which was meant to deliver social security benefits to people, the technology which was meant to democratize access to financial services. That technology ironically has been so successful that the Indian middle class, crushed as it is by pressures in the job market, influenced by social media, the Indian middle class has ended up becoming one of the most indebted in the world through this unique medium of Jan Dhan Aadhaar mobile.

So, these three forces, they’re very different sets of forces. Had they happened sequentially or one of them had happened, would have been fine. I think all three coming together is what’s made us write the book and hence the word breakpoint, a very specific point in India’s evolution where both modern technology and just brutal forces of free market economics are conspiring against the middle class.

MILAN: That was an excellent kind of synopsis of the book. But before we get into the question of jobs and skills, let me just ask you about this definitional kind of issue of the middle class. As you point out in the book, basically, if you meet 100 economists, you’ll get 100 definitions of what the middle class is in India. You have a very detailed empirical discussion of the different definitions, their pros, their cons, and the definition that you end up coalescing around, which is really to focus on the 40 million or so income tax-paying households. Tell us a little bit about just your thinking as you two are writing the book in terms of how your thinking evolved and how you settled on this definition.

SAURABH: The historical thinking on this has been that obviously by definition the middle class should be in the middle. A lot of people in India have said the middle is say 500,000 rupees per annum earnings at the lower end and say 3 million at the upper end. Some people have said 2 and 1/2 million, some people have said 3 million, but that’s broadly been the scale. In dollar terms, this has meant say $6,000 at the lower end and five times that, $30,000 at the upper end. That’s been the traditional thinking. As we got into the second year of researching this subject, we realized there’s a flaw in this definition, which is that if in a very poor country, and India remains one of the poorest countries in the world in per capita income terms, we’re amongst the 40 poorest nations in the world. If in a very poor country, you take a relatively lower middle-class sliver, then obviously by definition few years hence you’ll say that sliver has got richer and the rest are doing really well. So, we felt that we needed more rigor around the subject. The middle class should not just be in the middle. The middle class should account for the majority of the income earned in the country. Because otherwise, what’s the point of focusing on the middle class? The middle class should be the engine of earning and development. And if the middle class is to be the engine, the simple extra axiom we’re adding is not only is the middle class in the middle, it should also account for the majority of income earned in the country.

Now, had India been a reasonably equal society, this exercise would have been very easy. Basically, you take the 25th to the 75th percentile and you’re done. But as everybody watching this knows, we have one of the most unequal societies in the world. In fact, the city Nandita and I live in, Mumbai, has the fourth most number of dollar billionaires in the world. You can imagine what it does because you’ve got a few people earning crazy sums of money. If you want to have 50% of the income covered, you start at 500,000 at the lower end. You don’t stop at 3 million. You don’t stop at 4 million. You go all the way to 10 million. And that’s how we settled upon the Indian middle class: those 40 million income taxpayers who earn between 500,000 at the lower end, 500,000 rupees per annum, to 10 million rupees per annum. A lot of people are shocked at that because they believe people earning 10 million aren’t the middle class. But they don’t have any sense as to how much the billionaires in Bombay earn because Mumbai itself has 200 or 250 dollar billionaires. A number surpassed, I think, only by three or four global money centers.

MILAN: It’s fascinating because it also tells us that most of us have read these reports put out by various investment banks, consulting companies, think tanks, about the rise of India’s middle class. And one gets the sense when you read those reports of this really large tidal wave of people who are joining middle class. And the takeaway from your book is it’s actually a much smaller grouping than maybe we had been led to believe.

SAURABH: Right. We base this on the government’s income tax data. Because a lot of this whole subject is difficult because, for example, if you work for an investment bank and you’re asked how big the Indian middle class is, it’s almost like asking a barber, “Do I need a haircut?” And similarly, if you ask a policy maker, the similar metaphor applies. At one level, the metaphor is nothing wrong about it — boosterism, cheerleading economics. Hey, what’s wrong with that? The whole world does it. But in the context where we are living in India, with the amount of borrowing we are seeing from ordinary families who simply have no hope in hell of repaying those monies, with the behaviors we’re seeing about speculative investing in the stock market, speculative investing which has costing ordinary people 10, 11, 12 billion dollars a year. We felt that we owed it to the country we live in to have a more sober analysis basis the government of India’s data on who exactly is the middle class. And our submission in the book, and we’ve given plenty of data in Breakpoint, that you start at 500,000, you stop at around 10 million. That’s 40 million families. That’s all there is to it. We can’t manufacture more.

MILAN: In the book you say, “Look, the middle class is certainly small in absolute terms, but it does have a larger, wider economic footprint because it supports a much larger segment of society through basic services.” So how do you think about that multiplier effect?

SAURABH: We took different government data sets. Broadly speaking, the picture we built up, just to disaggregate it quickly — a billion voters in India, the most in the world. Out of those billion voters, 500 million are in agriculture. So they’re not part of the tax-paying economy. Agriculture is tax-free in India. Only about 500 million are in the non-agri economy, out of which only 150 million earn a salary. Might not be white collar, could be blue collar. 150 million earn a salary. And out of which only 40 million are part of the income tax ecosystem. Then as we dug further in, we said, “We know 500 million Indians are part of the non-agri economy. We know that 150 million are in salaried jobs, but what are the other 350 million doing?” And then we looked back and said, “Out of that other 350 million, roughly half are working for the taxpayers.” And how are they working? We broke it into two categories. The first was the anecdotes of our own lives. Each of us who pay taxes, we have someone cooking for us, someone cleaning for us, someone driving our car. That’s the direct employment. We said each income taxpayer roughly employs 2.5 million people in the economy directly. And then there is the indirect employment, the security guard in the building that I’m speaking to you from, the airline pilot who’s going to fly me to say Chennai tomorrow, the bus conductor, and so on. So, 40 million middle class income taxpayers, each of them accounting for five more jobs in the country. So, out of the 350 million Indians who are in the non-salaried working sector, majority of them, roughly 200 million by our estimate, are actually earning their income courtesy the 40 million income taxpayers. And that’s what makes these 40 million income taxpayers very influential. They are force multipliers. Each of them is creating five jobs in India.

MILAN: Nandita, one of the central theses of the book is that India’s labor market has been hollowing out middle-skill jobs for decades. This is a longer-term shift. In fact, you say it kind of dates back to liberalization. This is years when AI was not even part of our vocabulary. So tell us a little bit about why these middle-skill jobs have been so hollowed out over time.

NANDITA: Milan, you’re absolutely right. AI is a pretty recent thing. This has been happening for a few decades. Before I go to the three ways, which are very particular to India, let me go back and talk about the research that world over has happened on middle-skill jobs getting hollowed out. So an economist by the name of David Autor with his colleagues, Merlin and Levi, came out with this paper in 2003, I think. 20 years ago, roughly. That middle-skill jobs, the supervisory jobs on factory shop floors, are getting hollowed out because of automation. The basic blue-collar wage worker will be required. The CXO levels will be required, but the supervisory jobs are absolutely not required and will, going forward, also not be required. Building on that, there’s another economist called Daniel Susskind, who came out with this book called A World Without Work. So, he built on this theory and said that this has indeed happened in the last 20 years in the Western context.

Now, coming to India, when we read all of this, we thought that maybe it hasn’t happened in India. So we actually dug out research which has been done in India on this aspect of the labor market. And what we came to know was astounding even to me. As it turns out, there’s a research paper by this economist called Sudipa Sarkar, and she has taken out NSSO data right from 1980s until 2016-17 when she published this paper. And she has shown that this has happened in India as well. So, India is in a very different economic paradigm as compared to the Western world. And yet we see the same kind of issue happening there. And we said, “Okay, this is a secular trend.”

When we went in deeper, this is where we came out with these three waves that have come into India’s labor market, which has led to hollowing out of middle-skill jobs. So the first wave started roughly 20 years ago. India’s factories saw increasing automation. With the kind of labor cost that India commands, we are three x more expensive than Bangladesh in terms of labor cost. So that should put things into perspective. It’s definitely not cost-effective for our entrepreneurs to hire more labor. What they do is they substitute labor with capital. They start bringing in machines. They start bringing in automation. One of the instances that I remember while researching for this book is that I went to a small town just outside of Pune. I came across this small unit of a furniture manufacturer. It was a small manufacturer, barely 600-700 square feet worth of area for his factory. And he employed all but three employees. His annual turnover was 100 crores. That’s a massive turnover for someone at that scale. And he’s employing only three employees. When I asked him, “Why don’t you have more labor?” He said that it’s simply uneconomical for me to do that. I need only three people. One person will put in the plywood into the machine. The other person will take it out, pack it, and the third person will load it into the trucks which are waiting to ship it out.

I talked about the factory worker getting replaced because of automation. What has happened is that over time, it has sort of gone one level up. So your secretarial jobs, clerk level jobs, all these jobs have also been replaced by automation. This is what has happened over the last 20 years, and the proof is in the pudding. If you look at the income tax data again, over the last 10 years, we’ve seen that the nominal wage growth for the people who earn between 5 lakhs and 1 CR, which we have defined as our middle class, has been 0.4% CAGR. They haven’t moved at all. It’s a 0% nominal growth, and cost of living has obviously surged. So you can imagine the kind of profound impact all of this has had, and this is even before AI came onto the scene. We reckon now that AI is coming onto the scene and getting better. I think it got introduced at the end of 2022, and it was horrible. It was pathetic when I started using it, but today, I think half of my workload is being taken care of by AI. So it’s unbelievable.

MILAN: Be careful, Nandita, what you say on this podcast.

NANDITA: No, absolutely. It’s labor-saving. The kind of work that someone I would have hired as an intern would be doing, that’s what Claude is doing. So I do not need an intern today. Unfortunately, that’s the reality because the kind of productivity that I’m seeing at like 1/10 the cost. So that’s the third layer. The third layer is your routine cognitive non-routine cognitive jobs are going to get butchered because of this. Something like a software engineer, something like who works in the knowledge-driven sectors in the country, their jobs are at a very perilous position right now.

SAURABH: That actually is an important point because as we were writing the book, we were looking at the data, we were asking ourselves, why hasn’t anybody else written about it? And that’s when it struck us that when those factory jobs were being automated, it wasn’t really middle class, and hence nobody could be bothered to write about the automation of the factory job, that furniture factory that Nandita described outside Pune. Finally, now, as automation comes home to the core of middle classes’ employment territory, the issues are coming to the fore. Just this afternoon, Oracle laid off 20,000 people worldwide, out of which 12,000 were in India. So the Indian media is full of stories about Oracle workers turning up in their offices on 31st March and getting their termination notice. It’s obviously tragic because laying off a worker in a country like America with a tight labor market is one thing. 12,000 Indian families, middle-class families in cities like Bangalore, Pune, losing their jobs is a different level of challenge.

MILAN: Nandita, there’s another part of the story which is very important — the education story. One of the things the book does is really goes and points at deeper issues in the education system, particularly this kind of emphasis on rote learning. Tell us a little bit about how this has shaped the kind of crisis of employability as we see it today.

NANDITA: Whilst we’ve given a lot of examples on the engineering part of it, you’re absolutely right that we’ve cited a lot of examples, but that’s primarily because Indians generally have an affinity towards this subject. They tend to pursue this much more, so that’s why the data is far richer. We have these premier institutes like IITs who report their employment statistics. But I don’t think the issue is just contained to engineering students. It’s a far deeper issue. If you have a look at the data, the latest report that came out after the book was published is the Azim Premji University employment report, as recent as just last week.

MILAN: Right, this is the State of Working India report, and the 2026 edition has just come out.

NANDITA: Absolutely. And what it says is quite astounding. 40% of graduates under the age of 25 are unemployed in India today. And not only that, only 7% male graduates are getting a job into a permanent middle-class job that was the mainstay a few years ago. The other thing that we also came across is this report by PLFS, which is a survey that the government of India does on labor market statistics. What it says is that the graduate employment on an overall level, not just under 25, is 29%. And this is nine times the number for the unemployment number for illiterates. So that’s the massive difference we are seeing between illiterate unemployment and the literate graduate unemployment.

Why has this happened? We have a few theories. One of the most notable things that came across while researching this book was that when we spoke to professors, when we spoke to industry experts who’ve been in this field for 20-30 years, what they said is that at the turn of this millennium, what happened is most of the joint entrance examination, the entry examination into India’s premier institutes for engineering like IIT, their format changed completely. They used to have a written format where people could use their creativity.

MILAN: Essay-oriented format.

NANDITA: What happened is at the turn of the millennium, that changed to MCQ format. What was prioritized was getting to the right answer. How you get to that right answer was not really focused on, and that resulted in a whole rigmarole of getting into rote learning, trying to mug up answers, and then just spew it on the examination paper and get through. Now, because of the advent of AI, it demands that you become more creative. It demands that you use your own brain, your creativity to come up with solutions for problems. The rote learning bit is not going to work, and that’s why we’re seeing this massive gap in employment numbers and the graduates. The second aspect is the sheer number of graduates that India is producing, 8 million of those every year, it’s simply impossible for the labor market to absorb those kind of numbers, especially when your skill level is lower because of the rote learning bit, and that’s been going on for the last 20-25 years.

SAURABH: Just to amplify what Nandita is saying using the Azim Premji University data — out of every 100 graduates in India, in the year of graduation, only three are getting a white-collar salary job. Seven are getting a job, but only three are getting a white-collar salary job. As the years go by, people have to earn a living, so the employment rate improves with the passage of time, but in totality, the Azim Premji University data is saying one in three graduates still has no work. If you look at the stock of graduates in India, one in three have no work. This unemployment rate is higher than the 1980s. So pre-‘91, when I grew up in India in the ’80s, I thought we will never have to see that sort of period again. Looping back to the supply-demand issue, like in every other country, the multiple administrations in India have tried to democratize access to higher education. One of the simpler ways to do it is to lower the bar. So you lowered the bar, democratized access to higher education. Unfortunately, the job market has said, “Anyway, we need fewer graduates.” So you’ve got an adverse supply-demand situation, lower-skilled graduates with lower demand, crushing of real wages, and the employment rate is down. A simple way to crystallize this in our head is we’ve got a socialist education system in a capitalist economy, and that exacerbates the problem.

MILAN: You point out in the book that even elite institutions like the IITs are showing signs of strain with declining placement rates, salaries. Around 75% of IIT Bombay students secure jobs this year. That’s a drop from last year when it was 78%. The minimum wage was 6 lakh then, it’s 4 lakh now. How do you unpack whether this is a cyclical slowing down versus a longer-term structural breakdown?

SAURABH: Three sets of data gave us some clarity. The first was data from India’s IT services industry trade body NASSCOM. NASSCOM, by definition, just pulls together all the data on how many IT jobs are getting created. If you see the NASSCOM data cited in the book, it provided a 15-20 year time series. So you can see the year-on-year job growth in the NASSCOM data dropping from 10-11-12% 15 years ago to down to barely 1 or 2% now. It’s a relatively easy structural downtrend to see. There’s some wriggling in the line, but over time, over a 10-15 year period, the job growth data firmly trends down.

The second set of data we used was from a private sector company called Naukri.com. It’s a listed company called Info Edge. It’s India’s largest employment classifieds portal. If anything, they would have an incentive to overstate the data, not understate the data. In their jobs index today, the jobs index is where it was in 2019, which means in 6 years, white-collar job creation hasn’t really moved forward. There was a downtrend because of COVID, there was a recovery from COVID, but if you adjust that out between 2019 and 2025, the white-collar job space doesn’t seem to have moved, which tells me somewhere around the beginning of COVID was the end of white-collar job creation in India.

The third piece is real wages. If it was a cyclical issue, you would have seen years of positive growth in real wages followed by some stagnation. What we are seeing in the real wage data of India’s largest companies — we took the Nifty 50, the 50 largest listed companies, we took their wage bill, we took the number of employees. We then traced that back 10 years. What we are finding is over the last decade, in real wage terms — nominal wages minus inflation — the largest 50 companies’ average employees’ real earnings have diminished, which suggests the supply-demand forces are structurally turning adverse rather than a cyclical downturn.

NANDITA: Just to add to that, if you look at the Nifty 50 data, we didn’t just look at the last 10 years, we looked at 10 years before that as well. As it turns out, real wages were actually growing in India. Adjusted for inflation. You have to understand that India saw very high inflation rate in that period. This is 2007 to 2016. So the breakpoint is somewhere around the late teens. From 2007 to 2016, you can see Nifty 50 companies’ real wages are rising. From 2016 to 2025, real wages are falling. The Naukri data is also showing that somewhere in the late teens, white-collar job creation stagnates. Why the late teens? That’s something we haven’t quite been able to nail down.

MILAN: Let me just circle back to this question of technology. I want to take listeners into this anecdote that you tell where at one point, I think you’re somewhere in suburban Mumbai, you see a group of like 100 people sitting in a room, and it turns out that this group of 100 people are monitoring 1/3 of India’s ATMs, which is just such a mind-blowing number.

SAURABH: Just to back up a little bit, around 4 years ago, as we came out of COVID, we invested in a company which replenishes the cash for India’s ATMs. Cash in circulation divided by GDP is a big number. It’s still bigger than it was 10 years ago. So we said, “Hey, if there’s so much cash, let’s invest in a company which loads the cash into bank ATMs. It’s a fairly consolidated industry. We can make some money here.” And then as we got to know the company, they said, “Well, why don’t you visit our facility in suburban Mumbai?” We had some foreign investors who’d come into India at that time. So we thought it would be a great idea. All of us jumped into an SUV and drove off to suburban Mumbai. We got to this colossal industrial office complex. We went up a lift with hundreds of other people. And then we entered this dark room. Dark for people like us who are used to this sort of light. And then we saw the room wasn’t actually dark. There were dimly lit monitors. And in front of each monitor was basically an operator with a headset and a very sophisticated screen. On the screen, we could see blinking images of hundreds of ATMs.

Our host explained, “Look, we realized that rather than just putting cash into ATMs, why don’t we also provide ATM surveillance to the same banks? We charge the banks anyway for moving their cash around. We’ll charge them a little extra for surveilling the ATMs.” And my instinctive question was, “But the security guard isn’t even doing that.” And their pitch to us was, “This is half. It costs the banks half as much as the security guard would, because once you hire us, our scanners and bots and sensors are doing the job of effectively 60,000 security guards. Each ATM has a security guard for the morning and the evening. There were 30,000 ATMs being monitored. So effectively, 60,000 security guards have been replaced by these 100 workers sitting in front of screens.” And these workers were not just sitting in front of a dummy screen. Behind the scenes, a lot of AI had gone in to train the machine to pick up, say, odd behavior in an ATM in rural Bihar. Odd behavior would be someone with a helmet trying to withdraw cash. So the AI had trained the bots that if someone with a helmet tries to withdraw cash, please flash it up on the monitor in suburban Mumbai. The operator would then bark an order saying, “Please take off your helmet.” If the guy doesn’t listen, he would press the alarm button, and the local police would rock up.

At one level, as shareholders of this company, we were very happy. I remember blurting out, “You can do this for strong rooms, you can do this for restaurants. How much money you can make?” And then 2 minutes later, I said, “Oh my god, he can make money, but what happens to those 60,000 guards and those strong room employees or the restaurant workers who will get sacked as this sort of surveillance technology replaces human beings who were earning 400-500,000 rupees a year?” Bittersweet feelings. Even now, we are invested in some of India’s largest institutions who will happily tell Nandita and me, and they told us 4 years ago, that we will shut down our call centers, and our call centers will be run by bots. At that time, my understanding of this technology was fairly rudimentary. I refused to believe it. I refused to believe in 2022 January that by 2026 January, bots would replace human beings in call centers. And yet in India today, talking to a bot when you call up Amazon is a fairly routine experience. Again, think of the human story behind that. Tens of thousands of people getting rolled out of their jobs as bots kick in at call centers of the largest employers in India.

MILAN: I want to flip this discussion a little bit because at the same time you point out these very disturbing trends, you also take note of emerging opportunities. One of those sectors is the semiconductor industry. You say, “Look, there is now a really widening gap between the demand for skilled semiconductor professionals and what is now a highly limited supply.” Does this maybe fill you with a little bit of hope?

SAURABH: The reason we’re optimistic about India’s future is that this is a fairly fluid society. This is still a young society. Median age 28. It’s a high-tech society. We have the world’s cheapest mobile broadband. Almost everybody has a smartphone. And it’s a society where unless you pull your wits about yourself, unless you get your act together, there is no social security net that will really save you.

On the semiconductor example, India has around 150,000 semiconductor designers. They call it VLSI. The country needs thrice as much. We need basically half a million semiconductor designers, not just for foreign companies like Qualcomm, but even the Tatas and the Murugappas are setting up semiconductor manufacturing in India. We will need 2x, 3x the number of semiconductor engineers we currently have. The problem is India’s socialist education system ain’t providing that. The socialist education system is still churning out IT coders who are increasingly less relevant given that AI is increasingly doing much of the coding. So the supply-side response is lacking even for something as lucrative as semiconductor design. Just to give you a sense of how lucrative it is — Indians we spoke to who had 5 years’ experience of semiconductor design in Bangalore or Hyderabad, they could earn as much as 10 million rupees a year. So just 5 years’ experience, you could earn effectively 30x the per capita income. And yet the supply-side response is not kicking in.

So the entrepreneur in me is very excited by this. There are plenty of opportunities in India where there’s work to be done, but the socialist aspects of India’s background or legacy are not responding to those free market signals. And that aspect I think will be the remaking of India. We will realize that whilst the structured office jobs go away, the entrepreneurial opportunities abound. There’s plenty of work, but there are very few jobs. And I think that’s the psychological shift we’ll learn. That’s the psychological shift that millions of families like mine and Nandita’s will go through as we are trying to teach our kids that when you graduate from university, don’t expect to get a job. You will have to become an entrepreneur.

On that note, I met someone fascinating yesterday. I met one of the CEOs of one of India’s largest lenders. She’d read the book. She’d read Breakpoint. And she said it’s actually a curse if you graduate from a university in India and get a really good first job. Because if you get a really good first job, you’ll get into your head the same office worker mindset, which has proved to be a liability for so many other Indians because the office worker is a dying breed. If you build that office worker mindset rather than the entrepreneurial mindset, you’ll not be able to respond to the sorts of supply-demand signals you’re discussing in the context of the semiconductor industry.

MILAN: I want to make sure that we don’t disregard the final driver — this question of debt and finance. Nandita, I was pretty shocked to learn that Indians are some of the most indebted people across the world and that their debt, if you leave aside mortgages, as a percentage of overall GDP is bigger than that of the US and of China. What is driving this surge of indebtedness amongst members of this middle class?

NANDITA: We were just as shocked as you are when you first read this and first saw the data. It was unbelievable because from whatever I knew about India all these years ago is that India is a very high-saving country. They’re extremely frugal when it comes to their finances. They do not take these kinds of risks. That’s the kind of thing we were growing up with. What has happened, especially after 2020, both the pandemic and after the surge that came in, is this rise in aspirations. I would pin it squarely on social media because of the great equalization that Saurabh talked about. Someone who’s living a pretty middle-class life also gets equated with someone who’s living a billionaire lifestyle. Both of them can see each other’s lifestyle. Obviously, the one who’s earning lesser has more reason to believe that this is what the life looks like for the billionaire. So why should it not look like for me? And that’s where the whole imitation game starts for that guy. Obviously, his income cannot support it, so he keeps borrowing debt.

More broadly, the issue of debt in India is quite severe because when you think about what has happened in the job market, what has happened to their real incomes of most people, it’s but natural that this kind of trend has come about. People are taking incremental debt. If your incomes are not growing, even in nominal terms, forget about real terms, your cost of living is surging even then, and you don’t have jobs or job security as we speak, money has to come from somewhere. There’s an autonomous level of consumption that needs to happen. And that also is getting funded by this debt. If you see the kind of debt that has increased for Indians, it’s not mortgage. It’s the non-mortgage personal loan kind of debt that has propped up. What are people doing with that kind of debt? We looked at a few data points and what we found was quite astounding because people are taking debt, personal loans, to finance their vacations. They think that going to the Maldives or going to five-star, seven-star resorts across the world with boutique stays is what real life is and that’s how you show to the world that we have arrived.

What is fascinating is that 40% of annual income today goes towards servicing of debt for Indians, which is a massive number. It’s not going towards investment. It’s not going towards consumption. It’s not going towards any kind of savings. It’s going towards just debt repayment. With the kind of cost of living that we’re seeing, which is doubling every 10 years, you can imagine the kind of disposable income that is actually left with people. What’s worse is that 67% of Indian families, surveyed by a credit rating agency which we’ve also included in the book, have taken a personal loan. 67% — two-thirds of Indian families have taken a personal loan. And more worryingly, 53% of those have been taken below the age of 20 years [sic, likely means below 30]. So these are all young professionals in the peak of their careers, and they are just taking on more debt. They’re not investing. They’re not saving. This is a vicious cycle. Because your incomes are not growing, you don’t have job security, and you’re taking on more debt. So in order to service the previous debt, you have to take on more debt. And this spiral keeps on happening. We reckon, and we’ve explained why we think so, 5 to 10% of Indians today are in a debt trap, which is a substantial number when you look at India’s population.

MILAN: I want to bring this conversation to a close by thinking a little bit with you about policy. I felt you were quite charitable with government in terms of giving them the benefit of the doubt, despite, in my view, government seeming rather slow in diagnosing the issue. At various points you say, “Look, the finance ministry, the central bank, the prime minister’s office, they appear to be seized by these issues.” And indeed if you look at the past 6 months, you could point to any number of things — rationalization of GST rates, striking trade deals, trying to remove quality control orders and non-tariff barriers, finally implementing the labor codes. But the speed with which you move really matters, and it’s taken a while to get things going. Is that going to cost India in the long term? And is government doing enough?

SAURABH: The responsibility for giving the powers that be in India the benefit of the doubt lies entirely with me on this one. And I’ll explain why. My parents migrated to suburban London when I was 15 years old. And I grew up seeing that suburb of London through the ’90s, through the ’00s. In retrospect I realized what had happened in that suburb of London was all the back office jobs in insurance, in banking moved from suburban London, the place where I spent my teenage years, to effectively Bangalore, Gurgaon, and Pune. Now as that was happening through the ’90s, through the early years of the century, I can’t remember any media coverage of the subject. I can’t remember a single local politician commenting on it. Indeed, myself, I couldn’t fathom what had happened until we were into the early years of this century, when I myself actually decided to play the same labor arbitrage. I came to Mumbai for the first time, hired a bunch of bright people from the IITs and IIMs, and basically ran that arbitrage myself. So it’s very difficult real-time to figure out what’s happening even if you’re a well-intentioned analyst, policymaker, or journalist.

Second thing, even in retrospect, through the ’00s, it wasn’t clear what exactly should you do. What do you do that the jobs have gone to India? These are British insurers, British banks, they’ve shipped off all their jobs to India. What do you do with that call center work in suburban London? You can’t train her now to become a biochemist or an insurance underwriter. And across the UK, across the Western world, the same thing is happening. So call center jobs in the West got slaughtered through the first 10-15 years of this century, and it wasn’t apparent to Western policymakers what to do even after the jobs were gone.

The third piece is I then saw between 2015 and 2025 what happened to that town in the UK. As you’d imagine, that town voted for Brexit. If you go to that town where my parents used to live, they’ve now moved to the British countryside because of what I’m now going to tell you. That town is now — the high street is basically destroyed. The shopping mall has fallen apart. All sorts of criminal elements populate the town center. Nobody wants to put up a redevelopment of the shopping mall because the jobs are gone. And that part of the country has voted for Brexit. And my reckoning is MAGA America is a similar phenomenon. So I’ve seen this play out through my teenage years in a far more affluent society, and that society couldn’t respond. And that’s one of the reasons, Milan, we wrote Breakpoint. I said I’ve lived this once. I’ve seen the town where I grew up in my teenage years destroyed by a similar disruptive economic phenomenon, and British policymakers didn’t do anything about it real-time. Arguably they couldn’t figure it out. Post facto they didn’t have a policy response at all. What we ended up with was a populist measure which was take Britain out of the European Union, which hasn’t helped the country, I would argue. So that background informed my judgment that we need to give the government of India the benefit of the doubt, especially since we can see, as you mentioned, and as we describe in the book, they’re cutting taxes, they’re pushing forth remedial measures to address the worst of the stock market gambling that we’re seeing. And hopefully in the years to come the entrepreneurial response, the free market response ramps up to this. And in this sort of massive disruptive change, we wanted to make Breakpoint a constructive addition to the body of thought on what is happening and what can be done to take India forward.

MILAN: My guests on the show this week are Saurabh Mukherjea and Nandita Rajhans. They are the authors, together with Sapna Bhowmick Sarkar, of the new book Breakpoint: The Crisis of the Middle Class and the Future of Work. I want to just congratulate both of you on a really illuminating, thought-provoking, in many ways brave book. Thank you so much for writing it, and thanks for taking the time to talk with me about it today.

SAURABH: Thank you so much, Milan. Thank you for hosting us. We learned a lot from reading your book When Crime Pays a decade ago. So I’m glad we were able to add something useful to your podcast.

NANDITA: Thank you, Milan. Glad you enjoyed it.

Grand Tamasha is a co-production of Carnegie Endowment for International Peace and the Hindustan Times. This podcast is an HT Smartcast original.