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Rise of the Indian Middle Class

August 19, 2015

Rise of the Indian Middle Class

Defining India’s Middle Class

One of the most difficult terms to define in India’s socio-economic landscape is “Middle Class”. And yet according to most studies the country has anywhere between 250 and 300 million individuals who belong to the country’s middle class population. According to the international consulting firm McKinsey and Company’s 2013 estimates, India’s middle class population this year should have reached about 20 percent of the country’s population. This class may not seem to hold a commanding position in Indian society being only about a fifth of the population but consider this – National Council for Applied Economic Research (NCAER) estimates are that a decade hence, by 2025-26 India’s middle class population is likely to double to 547 million individuals or 113.8 million households (about 41 percent of the total population). Loosely defined as the group with a household income between INR 20000 and INR 100000, a middle class household is generally expected to own a television, a telephone (more likely a mobile phone), and a scooter/motorcycle if not a car.

IT Revolution

The rise of the middle class was noticed as a phenomenon in the late 1980s and through the following decades as a factor allied to the IT revolution in the country. Medicine and engineering – the two prime educational opportunities had become too expensive for the ordinary man to dream of. NIIT, Aptech, and such institutions mushroomed across the country with the promise of a lucrative career to any graduate who enrolled. These could be taken on alongside traditional curriculum. With India taking the lead as the world’s IT hub, young tech professionals soon started to go abroad and bring back big money. With money came the need for investments. Mutual funds, retail equity trade, insurance and other non-banking financial instruments saw a phenomenal growth at this time, as did the consumerism culture of the country. Growth in disposable income and credit culture put televisions, mobile devices, automobiles, real estate, and entertainment options well within the reach of the masses thus stimulating demand.

Education is Wealth

The rise of the Indian middle class is based on one key factor – education. For the group, education is a ticket to better employment opportunities and higher salaries thus eventually translating into an ability to uplift the entire family. Thus with education becoming the focal point of middle class society, most families do not hesitate to spend more on their children’s education. Last year, Tata Institute of Social Sciences and Assocham published a study that revealed that Indian students spend about USD 6-7 billion (approximately INR 45,000 crore) annually to study in foreign varsities. Bulk of this comes from the middle class. DS Rawat, Assocham Secretary General said, “It is not just the elite but the middle class families as well who spend their life time savings to educate their children abroad”. The country, however, fails to reap the benefit of this huge expenditure and the education. The brain drain among the middle class is the highest. Most of these students who go abroad to study prefer to stay on and work in these countries.

Great Expectations

According to an IMF report, India has now surpassed China (with an economic growth rate of 6.8 percent) as the fastest growing economy in the world. For the second straight year the Indian economy has registered a growth rate of 7.5 percent even as the global economy slowed down to a growth rate of 3.3 percent. According to various studies, the trend is likely to continue over the next 8 years as India shall average a growth rate of 7.9 percent.

India’s Gross Domestic Product per capita, based on the Purchasing Power Parity (PPP) method has grown from USD 844 to about USD 5,417.6 between 1985 and 2014. With this whooping growth comes sharp rise in demand for consumer goods and luxury items. Most of this demand is stimulated by the rise in standards of living among the middle class.

The trend will only grow in the decade to come, says a report by McKinsey & Company. By 2025, incomes are likely to triple. Real estate, automobile, and luxury goods ownership will show exponential rise. By this time, India’s ranking as the twelfth-largest consumer market in the world will also improve as the economy becomes the fifth-largest consumer market in the world. “Businesses that can meet the needs of India’s aspiring middle class, keep price points low to reflect the realities of Indian incomes, build brand loyalty in new consumers, and adapt to a fast changing market environment will find substantial rewards in India’s rapidly growing consumer market”, says the report.

Not only will India’s economic growth depend on the burgeoning middle class but also India’s role as the manufacturing and services hub of the world will be fueled by this segment. Economically, this group will thus command much power over the decade to come.

Changing Political Landscape

With money, education, and awareness came political consciousness. The middle class started to stir up and awaken to the country’s political environment. It is now the most significant vote bank in the country – one that no aspiring political party can afford to ignore. Aware of the effect of its ‘demand’ on consumer goods, the middle class now has a political demand. The latent power of this class became manifest in its overwhelming support for the 2011 anti-corruption revolution led by Anna Hazare. One may well see the evolution of parties such as the BJP at this time which was forced to shed its old avatar to gain a new pro-middle class one. AAP owes its creation to this class. The Congress which ignored these conspicuous signals was shunted out of power in the 2014 Lok Sabha elections. Again in 2012, in protests over the Nirbhaya case, lakhs took to the streets in different parts of the country demanding security for women – most of them can be inferred to belong to the middle class. Since its ascendance to power at the centre, the NDA government’s policies, campaigns, and budget trends very clearly target this group. The great Indian Middle class, it seems, is slowly emerging as one of the most powerful sections of the changing political landscape of the nation.

 

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