NEW DELHI, INDIA—For years, Jitendra Nikam's father warned him against aping a reckless western habit inexorably invading Indian society: credit card spending.
But the 34-year-old manager at an insurance company sees the world differently than his father, who belongs to an earlier generation that grew up in socialist India and balks at the idea of borrowing money. Nikam didn't worry about being mired in credit card debt. He has known mostly boom times, as India liberalized its economy, spawning millions of new jobs and a burgeoning middle class-a 300 million-strong, conspicuously consuming, earn-and-burn urban populace.
Now, though, he has lost nearly a year's salary—some $12,000—in the stock market's drop and faces the prospect of being laid off amid the economic slowdown. And he has a sizable debt from buying a sleek, 50-inch plasma TV, a portable DVD player, a washing machine—everything his father could only dream of owning in years past.
So, Nikam has put away his seven credit cards, vowing to change his habits. "These are uncertain times," he says. "We need to refrain from spending and save more."
In recent years, India's economic boom has spawned millions of jobs, lifting a massive chunk of India's population out of poverty. A new section of society emerged: a blossoming middle class (described as those earning $4,500 to $22,000 a year), which has a formidable spending power. The growing middle class in so-called emerging market countries such as India has been one of the engines of global economic growth, until the worldwide downturn knocked everyone back on their heels.
And now, many Indians risk jeopardizing their middle-class life.
Even though India hasn't witnessed a U.S.-style wave of layoffs, Indians, for the first time in many years, are forced to deal with a crimp in salaries and employment uncertainties. "As the economy slows down," predicts Rajesh Shukla, a senior fellow at the New Delhi-based National Council of Applied Economic Research, "the popular urban middle class cries of 'spend, spend, spend' will change to 'save, save, save.' "
India's nationalized banks are said to be fairly insulated from the global meltdown, but the financial crisis has virtually paralyzed the country's capital markets. India's stock market has lost half its value this year, a liquidity crisis plagues India's private-sector banks and financial institutions, and the inflation rate is approaching 10 percent. To top it all, the global economic crisis is slamming the brakes on what had been India's fast-growing economy, which was up 9 percent last year.
Shukla, who authored a research project called The Great Indian Middle Class, says that despite government measures, the economic downturn is causing a seismic shift in middle-class attitude from just a few months ago, when the economy was on a roll, Indian salaries were rising at the highest rate in Asia, and Indian consumer confidence was at its peak.
Since the boom began, Indian consumers—unlike consumers in the other emerging Asian behemoth, China—appeared more inclined to spend than save. India's gross national savings rate, a telling indicator of how much people earn over what they spend, rose from 14 percent in the 1960s to the current level of 28 percent. Although less than 30 percent of India's mammoth population of 1.2 billion can be classified as middle class today, the group accounts for three quarters of the consumption of high-end goods, such as cars, air conditioners, TVs, washing machines, and refrigerators.
India has enjoyed a long-term cycle in which rising incomes lead to increasing consumption which, in turn, creates more business opportunities and employment, further fueling economic growth. "Private consumption has already played a key role in India's growth than it has in that of other developing countries," McKinsey India, the international consulting firm said last year.
Some experts doubt that the middle class will tame its consumer aspirations right away. "People are buying less this year," says a sales agent at a glitzy mall in Delhi. "But the boom has spawned a large appetite for gadgets, swanky cars, and expensive kitchen appliances that can't just be wished away."
Better-off Indians won't be embracing an austere lifestyle very soon, says Sudeep Chabbra, the mall manager of Emporio, a luxury mall that opened in New Delhi in August. On three expansive floors, Emporio houses high-end luxury brands like Louis Vuitton, Cartier, Dior, Jimmy Choo, and Chopard. Its glass doors swing open into large oval atriums festooned with crystal chandeliers, fountains, and fittings of burnished wood and brass. Despite the slow down, says Chabbra, "the reception to Emporio has been pretty good."
Malls like Emporio are catering to India's upper middle class segment and a rapidly expanding millionaire base. But for now, the lower segment of its growing middle class is reportedly deferring purchases, and financial companies report a drop in loan applications. The consulting firm KPMG, which tracks spending patterns, reports that sales of products such as cars and consumer electronics—the symbols of Indian middle class aspirations—have dropped more than 15 percent since August.
Inside the swanky Select Citywalk Mall in New Delhi, Sunanda Rao, a 32-year-old opera singer, is spending her evening loading up some holiday gifts for her family. She has her eye on a chestnut-colored corduroy shirt for her husband. After learning the price, though, she hesitates. Her fingers brush past the crisp 500-rupee ($10) notes stacked in her fat wallet. "Maybe next time," she says, looking up at the salesman, and exits the store.