November 7, 2024
📰 FEATURE STORY
Is the Indian middle class shrinking?
The value of the middle class to a country, economy, or society has been discussed for decades. In the past century, they’ve been seen as drivers of the global economy across most of the world. They provide a strong base that drives investment and is critical in encouraging social development. A healthy middle class is seen as necessary for a healthy democracy.
In India, the middle class has often been debated. Are they thriving? Are they worse off than ever? Are they up or down? India’s rapid growth story is often attributed to its burgeoning middle class. But over the past few years, there hasn’t been a consensus on whether they’ve expanded or shrunk. Surely, given India’s growth, they must’ve expanded? Or have they?
Context
A YouGov-Mint-CPR-Millennial survey from July showed that over 88% of urban Indians called themselves ‘middle class’ when asked to describe their family’s financial situation.
One thing’s for sure, India’s socioeconomic landscape is changing fast. Millions of people have transitioned out of poverty and joined the middle class, or as some refer to it, the neo-middle class. According to some projections, the middle class is expected to reach 41% of the country’s citizenship by 2031.
So, who constitutes the Indian middle class? How’s it defined? It’s tricky since there isn’t one all-encompassing definition that’s widely accepted. In most countries, household surveys only collect information on income or consumption levels. They’re sometimes seen as interchangeable but shouldn’t be.
A 2012 paper by the Centre for Global Development defined India’s middle class as the section with “reasonable economic security in today’s globalised world”. It used data from the 2009-10 National Sample Survey and estimated the size of India’s middle class to be 70 million. It stated a daily per capita income range of $10-50.
In 2021, the Pew Research Centre estimated India’s middle class was 66 million people. They used a daily per capita income range of $10-20.
According to People Research on India’s Consumer Economy (PRICE), the middle class is those who enjoy economic security. Their income level is sufficient, and there isn’t an imminent threat of falling into poverty.
You’ve probably got the idea by now – arriving at a concrete definition is hard since everyone has their own way of looking at it.
But if we look at the bigger picture, has the number drastically shrunk? Recently, Suresh Narayanan of Nestle India commented on how the Fast Moving Consumer Goods (FMCG) sector is feeling the pinch due to reduced spending by the middle class. Post-Covid, the middle class has been under the spotlight to see if they’re tightening their purse strings or if there’s something else going on. Are they shrinking in number?
VIEW: The middle class is growing
Just because the FMCG sector is seeing a slowdown in demand doesn’t mean the Indian middle class is shrinking. According to Rajiv Shukla of PRICE, the middle class is actually expanding. He defined the middle class as households with an annual disposable income of ₹5-30 lakh. 39% of Indian households comprise the middle class. That’s an increase from 31% in 2021.
The number of people earning over ₹10,000 a year has increased significantly. The demographic is among the fastest-growing segments of the population and has outpaced the growth of its worldwide counterparts. India’s middle class has a few unique characteristics. It’s the youngest globally. This translates to greater economic power being the driving force behind the domestic market by buying homes, cars, consumer electronics, etc.
While China, for example, has been recognised for its rapid economic growth thanks to its reputation as the world’s factory and exports, the rise of the Indian middle class is associated with different growth drivers. India has benefitted from a service revolution, like IT. Technological advancements have reduced disparities. That means middle-class growth isn’t concentrated in large urban areas but spatially dispersed, leading to improved allocation of resources like labour, capital, and energy.
COUNTERVIEW: The middle class is shrinking
Concerning Nestle India Suresh Narayanan’s comments, he said FMCG companies depend on the middle class. That’s where they operate but it now “seems to be shrinking”. For a while, corporate and market analysts have been discussing stagnant consumption demand and growth in rural and urban India. Here’s another indicator – car dealers were sitting on 7 lakh vehicles as inventory ahead of the festive season. Commercial vehicle sales have decreased by 4-6% this year compared to last.
The K-shaped GDP growth post-pandemic led to an equally K-shaped consumption pattern where premium segments performed well, but the middle segment didn’t. Despite a GDP forecast of over 7%, there’s increasing stress on urban consumption. China’s middle class has grown quicker than India’s. Take the tax-to-GDP ratio. In China, it increased from 14% of GDP in 2000 to 23% in 2020. It has remained in the 15-18% range during the same period in India.
There’s also perhaps something to glean from the Lok Sabha election results this year. Some of the analysis post-election and post-budget was that the Indian middle class was upset. About 55% of the country’s income taxes are paid by citizens, while the big corporates contribute only 45%. They’re shouldering an unfair share of the tax burden. Combine this with lacklustre employment numbers, and it’s a bad look.
Reference Links:
- The Middle Class in India: From 1947 to the Present and Beyond – Asian Studies
- Who belongs to India’s middle class anyway? – Moneycontrol
- Is consumption of India’s middle class shrinking? – Business Line
- The rise of the Indian middle class – Deccan Herald
- Who shrank India’s middle class? – The New Indian Express
- The ‘What’ and ‘Why’ of India’s shrinking middle class – Times of India
- Consumption Data Shows the Indian Middle-Class Is Shrinking – The Wire
What is your opinion on this?
(Only subscribers can participate in polls)
a) The Indian middle class isn’t shrinking.
b) The Indian middle class is shrinking.
Previous poll’s results:
- Chief Justice DY Chandrachud’s legacy is good: 63.2% 🏆
- Chief Justice DY Chandrachud’s legacy is not good: 36.8%
🕵️ BEYOND ECHO CHAMBERS
For the Right:
China’s Stimulus Package Exposes the Volatile Nature of India’s FPI Scenario
For the Left:
Two Acts: How Waqf and Places of Worship Acts have made Hindus ‘second-class citizens’ in their own country