Diwali is a festival of vibrance in India where consumer spending reaches its peaks. But this time the scenario feels different as the middle class seems to tighten its pockets.

This effect of sluggish spending from the urban middle class can be seen in the weak quarterly earnings of companies like Hindustan Unilever, Nestlé India, and Bajaj Auto.

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The CEO of Nestlé has explained it to be a combined effect of high food inflation and stagnant wages, as well as the lack of jobs in the market. These have led to people cutting spending even on essentials as well.

The Modi government's fiscal policies have a major role to play as well. The high emphasis on social welfare programs combined with the increased tax burden on the middle class has led to lower disposable incomes.

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Although some capable households as well as the rural markets are showing resilience, the effects are worst seen in the middle class, leading to a preference for saving over spending.

While some sectors are affected indirectly, others are hit straight-on. Two-wheeler and automobile sales saw a big dip in September, along with the FMCG sector reporting a plateaued staple consumption over the past few years.

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Consumer electronics have also witnessed a fall in demand this holiday season.

All these factors combined together have set a sombre tone this Diwali, with households prioritizing savings over festive indulgence.