MUMBAI/NEW DELHI – Sharp rises in education and
healthcare costs in the last two years have hit India’s burgeoning middle class
hard, denting Prime Minister Narendra Modi’s popularity among the relatively
well-off ahead of a series of state elections.

Price increases for services deemed a luxury for most
Indians could also complicate the central bank’s plans to cut borrowing costs,
with decades of low investment in schools and hospitals meaning they will remain
expensive for some time.

“Spending on my son’s education and medicine for
the family has gone up sharply,” said Sambuddha Banerjee, a 47-year-old IT
professional, who works for local government in Kolkata in the northeast of the
country.

“The government also cut fuel subsidies and tried
to impose taxes on our pension savings. This is not acceptable.”

Banerjee is thinking twice about voting for Modi’s
ruling Bharatiya Janata Party (BJP) at elections scheduled for 2019.

That view is far from universal, but is already on the
radar of a government that swept to power in 2014 with promises of economic
reforms and pro-business policies that appealed to aspirational Indians living
in big towns and cities.

Modi has already seen support among the huge agriculture
sector ebb following several crop failures, so appeasing the middle class,
which accounts for about a quarter of the 1.3 billion population, looks
increasingly important.

“Rising prices of commodities and services which
have a higher weight in the consumption basket of middle class households is an
issue that cannot be ignored,” said a senior finance ministry official.

“This is a supply side issue and can’t be addressed
in the short term,” he added.

To ease some pressure on middle income earners, the
government plans to hike salaries of its nearly 10 million employees by 24
percent this year.

GOVERNMENT
BACKS DOWN

Education costs have risen 13 percent, housing 10
percent, healthcare 14 percent and electricity 8 percent since Modi took charge
in May 2014, time series data on CPI inflation collected by the Ministry of
Statistics showed.

That puts a disproportionate strain on middle class
incomes, with education costs accounting for 7 percent of urban households’
monthly spend compared with 3.5 percent of rural households, data showed.

Food and beverage prices, meanwhile, which account for
more than a half of the CPI basket, fell 10.5 percent since Modi’s election
victory, although there, too, items like milk and eggs favoured by middle income
Indians have actually risen.

Owners of motorcycles and cars are further upset that
the government took away some windfall gains from falling oil prices in the
form of taxes, and people across the country are cutting back on discretionary
spending as expenses outstrip earnings.

Underlining the government’s sensitivity to a
“squeeze” on the middle class, earlier this month it agreed to roll
back plans to tax pension fund withdrawals following a backlash from salaried
workers.

While national elections are three years away, the BJP’s
popularity faces earlier tests, with ballots in states including West Bengal
and Assam later in 2016, and the key battleground of Uttar Pradesh due next
year.

– Reuters