 Hello and let's talk about why 2021 is just going to be the best year ever. Now jokes aside, we know that 2020 was quite bad. There was a pandemic which affected every aspect of life, including the economy for so many months. And what makes it worse is that we are living under a government and a policy framework which encourages the top corporates, the top 1% while the rest of us manage struggle to just keep or maintain our standard of living or not descend into poverty. And we're also talking about some of the poorest people in the world here. And there's also the fact that over the past year we have seen an intensification of the attacks on institutions or the attacks on secularism, on democracy, on freedom of expression. All this paints quite a grim picture. And we know the people are fighting back. We know that the peasants, for instance, the farmers have been gathering around Delhi trying to protect their livelihoods. We saw the workers take out a huge strike last month and even before. But nonetheless, the fact does remain that even going into 2021, what we're likely to see is that this small 1% is likely to increase its assets. It's likely to benefit much more while the rest of us don't really get any benefits economically speaking. We talked to senior journalist Anandya Chakravarti on why this is the case. Thank you Anandya for joining us. So in media organizations is the time for the year-enders where everything under the sun we sort of look back what happened in the previous year, look ahead to how the following year looks. And our discussions over the past year, past couple of months at least, not very, lot of grim scenarios we talked about. But one thing we regularly focused on is the state of the middle class itself. And this is obviously a very important marker of how the country's economy is moving ahead and whether more people can enter the middle class, whether the existing middle class has the chance to expand its lifestyle, its standard of living, these are key questions. So maybe first could you quickly take us through how the year has been for this group and this section and a basic idea of what might lie ahead. You know the middle class essentially has for the past couple of years just been looking at what in business parlance is called green shoots. So they're told that now its recovery is coming anytime but actually they've been waiting for this recovery. And of course we belong to, we might not know this but we are actually part of a very affluent part of India. So we might not believe that we are affluent but compared to the rest of India, we are affluent. We are probably part of the top 2%, 3% of India, not more, I mean not wider than that, probably even less if you look at it. And so the point is that none of us, none of that middle class, even the affluent class, because frankly when you talk of middle class it can be anything but those who buy things are that top affluent 5% of India, rest of them just basically somehow survive or buy very little. These people have not seen good days or the achedin which were promised in 2014 for a very, very long time. They've been told that things will recover. The only thing from which they've had a relatively steady income is financial. So if they have investments in mutual funds or in the stock market they've had some kind of a flow coming in from there. And of course, if you keep it in a bank as you know that in our parents' generation bank deposits were good sources for you to put your money and retire up and now of course that's completely gone. It barely keeps pace with, even in a fixed deposit you're going to end up barely keeping pace with inflation. So the middle class job opportunities for the middle class, especially I would say younger people, because those like me who are near 50 have already seen the boom from 2004 to 2008 in India. Those like you who are younger have probably missed that but were still in that afterglow. I see people who are joining now, they are facing a great reduction in this standard of living compared to what even their parents had. So people who are in their 20s today are not able to understand how to live the lifestyle their parents gave them. And again, I'm talking about the affluent people because they don't know what their parents expected them to or what they expected to in India. So many of them probably still live with their parents and almost treat their salaries as part pocket money. So this is a problem that the middle class has been facing. Now, COVID may has made obviously things much worse. We know that the white college workers lost a huge number of them lost their jobs, a huge number of them took salary cuts. Some of that I would say about 50, 60% of that salary cut has been reinstated in some segments. Like for instance, the finance sector definitely has done very well. IT salaries have partly been reinstated, but still there have been job losses. The question is then that, how are we seeing this so-called recovery taking place? We've been hearing about the recovery car sales. We know how those car sales might not be real or two wheeler sales might not be real. But still those numbers are out there. So the question again is how did the corporate India have these record profits in the second quarter of 2020 in the middle of a slowdown. So I would say that these are questions and the answers to those are pretty grim. And I would say that 2021 is going to be a tough year for India's middle class. Tougher than what it is even now. That's actually interesting in us also. In some sense is a very scary diagnosis because we've, we're talking on the one hand about the vaccine. There's a lot of hope about how, you know, this might be the moment which can, where we can start thinking of a recovery after all these months, after almost a year in lockdown in various forms. But what you're saying is that this is actually probably the beginning of yet another very difficult phase for a lot of middle class and white collar employees, et cetera. So why would that be? So if one looks at the immediate impact of the lockdown, right? What was the immediate impact? Companies thought that they're going to, basically the market is drying up. They're going to lose huge amounts of money. They can't afford to people on role. So they just let go of people, right? I think they let go of more people than they needed to. They took it as an opportunity to let go of people. They saw that, okay, they were, let's say someone had, was already a middle-run executive in 2008, right? The collapse came, they continued to stay in that relatively high pay bracket. So companies have regularly used opportunities to get rid of senior people and replace them with younger people who they'll pay probably 40% of what a senior person was being paid. So I think this was used as an opportunity to what might be called purge, the top bracket purge the management space and get rid of people, much more than that was required. Exactly. But as we know that because of the slowdown in China, I know that China was the only one which is at positive growth, but if China is at positive growth of let's say 1% or something like that, the problem with that is that China is the basic, essentially guzzles commodities. Commodities, I mean all raw materials, whether it is coal, whether it is cement, steel, you know, precious metals, rubber, all these things are petrol and I mean, petrol, diesel, natural gas, everything is actually consumed by China, most of it and then converted into finished products, pushed out to the world and China itself consumes. It's a huge population of relatively, with people with a reasonably decent standard of living. Now, because China slowed down, China might have positive growth and not been recession, but the fact that it slowed down over two, three quarters, meant that there was no market for steel, cement, rubber, you know, coal and things like that and they completely collapsed. Now, suppose you're producing things. What are the three things you need? One is raw materials. The second is people to work for you and the third is money or capital to buy things, right? So raw materials became extremely cheap. Two of these elements which are widely used is of course coal for electricity, then crude oil which is converted into plastics which we use and directly fuel which is used and then there is steel and cement which is used across the board. All of these became cheap and because of that, what we saw essentially was raw material costs of companies dropped sharply in these quarters, way beyond what they thought. They reduced wages, their salary will went down and in some segments it went up marginally which is only the banking and finance sector which obviously did very well. Given that the total cost and the RBI was pushing out free money as much as possible, right? So interest rates went down, the cost of capital went down sharply, right? Given that all these costs went down, even though the companies were not able to match the total volume of sales they had in previous years or the previous year itself, the cost fell at a much sharper rate. So the only people who gained were these owners of capital, corporates, they gained. Now here's the problem, China is recovering. We know that Wuhan is actually out there, there's a nightlife which shut down and now they've reopened all the bars and restaurants and that became a big story a couple of days ago. So China is completely back in gear. It is starting to buy things. Other countries are recovering. We know that India's growth has been the worst even in Q2 compared to the rest of the world. So other countries are starting to buy commodities again. Again, the main exporters of commodities, many of them are African countries or let's say the Gulf. What has happened is that their supplies have also shot down, we've come down because of COVID and because of that prices are rising. So that particular space cement, petrol, petrol and diesel not so much but definitely rubber, cement, coal, steel, these are all shot up. These prices have gone up. So commodity prices are going up and which is why there is also a fear that given inflation, what if the RBI increases interest rates? If the RBI increases interest rates then cost of capital will also go up. Given that the only place left for you is to reduce wages even further, which is historically exactly what capital does and given that there is no unionization, especially the middle class hates unions. The middle class says unions are terrible. They lead to lots of people don't work. They're lazy. They want free money. Now they will face it. The middle class will face the brunt of the fact that they don't have any collective bargaining power to put pressure on any kind, on the government to force corporates to hold wages. So I think this is a big, big problem for anyone who's employed in the private sector in general and we know that if the private sector is affected then the unorganized sector is also going to be affected, which is essentially buys. By private I mean the organized corporate sector. So this context like you talked about earlier before this also means that as if wages remain low, get cut further, there are more firings. What we're again seeing is also that there's going to be even further decline in demand and decline in purchasing power, which means the economy continues to remain in the doldrums as it is. Exactly. In fact there is something interesting here as well what might happen Prashant is that right now there's been a rise in profit margins in the manufacturing sector, the financial sector, but we know that in construction and all it's been badly hit. And if cement and cement steel prices go up, construction will be affected badly. What has happened interestingly is that wheat, sugar, milk prices have collapsed or been flat completely, quarter on quarter compared to last quarter. That might lead to a bit of a recovery in what is called the food oriented FMCG sector. The cheese makers, the biscuit makers and stuff like that, but that's a very small space. But it also signals that the farmers, the returns to farmers are also going down in relative terms compared to last quarter. If it's going down in relative terms and even compared to last year, then even the so-called, we've been hearing this fairy tale about recovery coming from the agricultural side, from the rural sector, even that is not going to happen. So there's a huge demand shrinkage coming and one can sense that also from CMI's consumer sentiment index, which is actually completely collapsed after going up in September-October, it has gone sharply down in November. And I don't think that December one has still come, but November definitely has gone down sharply. So you can see that consumer sentiment, people thinking how their life is going to be one year ahead, that has gone down very sharply. So effectively I wouldn't say there is much hope in 2021 for the middle class. Absolutely. And of course this section also exists in the most deregulated sphere of the economy as well. So even the idea of the government coming in and bringing, pushing in money for that matter, it really doesn't, it's difficult to visualize. Exactly. No, it's not possible. It's not possible. I mean, the fact is that when governments give money to corporate sector, corporate sector fatten their margins. This is well known, right? They do nothing to actually pass it over. Why would they? Their objective is to create profit, right? If you look at all big corporates are listed. They're on the share market. Every quarter they have to give their income numbers, right? And what is called an EPS, which is earning or profit per share. If the profit is one lakh rupees and there are 100 shares, then 100 rupees is earning per share, right? So people keep looking at that number, right? And the markets react to a lot of these things. What is going to be the earnings? What is going to be the profit? You can keep saying that, oh, I paid my workers more, right? When your stock price is going to tank, right? And when your stock price tanks, you might not be immediately affected, but what happens is that your market value of the company drops. You're not able to raise funds. It becomes difficult to leverage in the market. So all these things happen. So this very process itself is bound to be, we know when corporate taxes were cut last year, what happened? Corporates increase their profits. It's not as if they passed it on to consumers. Right. Prices were cut very marginally, right? So that's the thing. So it is, there is no network through which you can pass on anything to the, and again, in the West, if you look at the minimum wages or the minimum standard of living, right? If I look at Europe, say if Dole is being given in Europe, unemployment benefit is being given in Europe, that's a decent living. We, people like us might be able to live off unemployment benefit in England, right? Or in Europe. But, you know, PM Kisan is 6,000 rupees a year. So the government now says that, okay, you lost your job at some big corporate, you were a sales manager. Here, 6,000 rupees per year is your thing. Right. You probably spend that on two meals in some restaurant. So, yes, I think one of the things that has happened is some of the middle classes, some are saved because of not spending on certain kinds of discretionary. That's the only thing which is keeping it going. Absolutely. Thank you so much, Anandya, for speaking to us. Thanks a lot, Prashant. That's all we have time for today. We'll be back on Monday with more news from India and around the world. Until then, keep watching NewsClick.