Reassure Homes, Not Just Economy
OPINION I The Economic Times
The problem with global crises is that economists tend to see them first in the aggregate, while households feel them in fragments. GDP slows by two per cent, inflation rises by three per cent, and unemployment inches up. These are important figures, of course. But for most families, the crisis comes in much smaller ways: The scooter they can't buy, the cooking oil they use less of, the school fees they pay a month late, the quiet decision not to eat out anymore. Economists refer to these as “adjustments.” Families call them life.
One of the cruelties of crises is how they reveal the unevenness of resilience. We instruct families to “spend better,” as if economic insecurity can be solved by financial prudence alone. But there's an awkward asymmetry here. True that an Indian middle-class professional may have to be more judicious with his spending in uncertain times. But a low-income worker (petty traders, hawkers, rickshaw pullers) often does not have a spending problem. The trouble is that income itself has become too fragile to support even modest dreams. That is to say, in the one case the family needs advice on budgeting, in the other case the family needs better earning opportunities.
This distinction is important because policymakers and politicians tend to underestimate the psychological effects of uncertainty. During the financial crisis in the US in 2008, consumption fell not only due to the income decline but also due to the increased uncertainty of households about the future. And that was true during the pandemic in much of the world. Even families whose income remained relatively stable began saving more and spending less because they didn’t trust tomorrow enough to consume with confidence today. OECD studies after the pandemic found precautionary savings surged across all major economies despite historically low interest rates, due mainly to households fearing prolonged instability rather than immediate income collapse.
India is starting to show similar patterns. Aggregate growth numbers are still respectable, but there is a more anxious household economy underneath. India may still be the world’s fastest growing major economy, but growth alone does not take away insecurity. Depending on the definition used by PRICE, the country has a middle class of around 500 million people, earning a household annual income of INR 6-36 lakh at 2026 prices. But a lot of this middle class is still financially insecure. Years of financial progress can be quickly destabilized by a medical emergency, long-term unemployment or a period of high inflation.
This uncertainty is felt most strongly by young professionals. India has one of the youngest workforces in the world, with almost two-thirds of its population below the age of 35. Every year, millions of people enter the labour market with educational loans, family obligations and expectations of upward mobility. But the work itself is becoming less predictable. White-collar work is starting to be reshaped by artificial intelligence and automation in a manner that previous technological shocks mostly affected manufacturing. A new anxiety is now carried by a young software engineer in Bengaluru or a financial analyst in Gurgaon: not whether work exists today, but whether the same work will have value five years from now.
Parents face uncertainty in many ways. Education and healthcare costs have risen persistently faster than household incomes for years. In metropolitan India, school fees increasingly resemble mortgage payments, with private school fees in some cities reportedly rising by nearly 50–80% in the past three years. Healthcare inflation, too, remains high at around 12–14% annually, while nearly (48%) of healthcare spending still comes directly from household pockets. Unsurprisingly, financial planning for many families has quietly shifted from wealth creation to risk protection.
Small businesses are more fragile than most. Unlike big companies, they don’t have much in the way of reserves to survive long shocks. A geopolitical conflict thousands of kilometers away can suddenly affect fuel prices, logistics costs, import dependencies or consumer demand. For millions of small businesses across India, the pandemic was a lesson in how fast a temporary interruption could turn into a solvency crisis. Even now, many are more cautious and prefer survival to expansion.
The key point here is not that crises are novel. They're not. Every generation thinks it’s living in a time of extraordinary uncertainty. The oil shocks of the 1970s, the Asian Financial Crisis of 1997, the global recession of 2008, and the pandemic have all profoundly changed household behaviour. What may be new is the speed at which global instability now affects ordinary households. A war in Europe alters fertilizer prices in rural India. Bengaluru’s employment decisions are affected by China’s supply-chain disruptions. When interest rates change in Washington, it affects how affordable housing is in Mumbai.
This interconnection has altered the psychology of consumption itself. Economists sometimes assume that households respond rationally to incentives. They do but only within bounds imposed by fear and uncertainty. If a family is not secure, it will not spend just because interest rates drop a little. Confidence is an economic variable in itself. Perhaps that is why so many economies today look better statistically than they feel socially. Stock markets bounce back quickly from crises, but households take much longer to recover emotionally. In the years after the 2008 financial crisis, American households were cautious borrowers, even as the economy recovered. Japan’s prolonged stagnation after the 1990 asset bubble fundamentally changed consumer behaviour for an entire generation. Once uncertainty tips into the household psychology, it lingers long after the immediate crisis is over.
India is in danger of entering a similar time of tentative aspiration. People still want to move up, but they're increasingly looking for it defensively. Emergency savings grow. Insurance demand increases. Discretionary consumption falls off outside the better-off segments. Families are not willing to take financial risks. Such caution over time impacts the wider economy because consumption remains the bedrock of growth in a country like India.
And this is why the real challenge for governments is not simply to create growth but to create reassurance. Sustainable growth requires that households believe there will still be jobs, that their savings will still be worth something, and that upward mobility is still possible. Without that confidence, economies may grow statistically, while societies grow steadily more anxious, defensive and unequal. And that, in the end, is the paradox of modern crises. The macroeconomy can recover long before households do emotionally.