What does it mean to be “middle class” in India? It’s a difficult question to answer and depending upon our idea of the middle class it can vary. We will take a close look in this article about India’s middle class and to get a better understanding of it.
In a 2018 book written by Devesh Kapur and Milan Vaishnav named “Cost of Democracy” political finance in India, it showed that about 50% of Indians consider themselves as middle class.
This isn’t something new for us as we know India is a country that has been long obsessed with the idea of the middle class and that’s what the data suggest.
In fact, we might just say the opposite: that it showed much lower than what I initially thought. In a different study in 2015, Pew research found that only 2% of Indians qualify as middle class while more than 80% fall in the low-income category.
India has a per capita income (PCI) of 2200 $ which is also some of the lowest in the world. For a middle class in India, the monthly income should be around 300-600 $ or (23000- 46000₹) that only 2% of the population earns and it shows the scale of poverty.
Pew research carried out their study in more than 100 countries and divided each country’s population into five groups; poor, low income, middle income, upper middle income, and high income based on the per person income of a family. We need to understand that there is no universal definition of a middle class as it varies from country to country as well as on the standard of living of that place.
According to pew research, a family that earns between 10-20 $ or (800-1600₹) can be categorized as middle class. This definition is from a global perspective two Indian economists had a different take on it. Indian economists Sandhya Krishnan and Neeraj Hatekar used an alternative definition that ranges from 2-10 $ (160-800₹) just to dial it down to Indian levels.
By this definition half of India’s population is middle class. But what is surprising is that someone who earns as low as 2$ or (160₹) per day is considered middle class. It also reflects that people who can barely survive are also a part of this middle-class ecosystem and how worried we should be regarding the poverty in India. It mostly includes household workers, shopkeepers and those people who can anytime fall in the low income category.
But the question is what happened to the middle class that we keep hearing about. It seems all this while we all got it wrong including these big corporations that entered the Indian market to capitalize on this middle class.
In fact, once John Culver said there are 600 million people that sit in the middle class in India which presents a big opportunity. This middle class in India that people talk of so much is a disguised low-income group.
This is the overwhelming majority of India’s population. Pew research found that from 2001 to 2011 the poverty rate fell from 35% to 21% in India but the middle only increased from 1% to 3%.
Mostly poor people made it to the low-income group and very few made it from low-income to middle-income. In the same period from 2001 to 2011 China’s middle class grew six times that of India.
So this wrong assumption that the Indian middle class is a huge pool of people has been a hard hit for many companies who initially have pretty big aims for the Indian market but eventually fail to make any serious mark. Many of these big corporations eventually serve only the rich of the population.
In the case of Ola, its present in pan India but its 80% of the revenue is generated from a few metropolitan cities like New Delhi and Mumbai. The Founder of Cred Kunal Shah in his interview said he was only targeting the 1% of Indian society and that more than enough.
In 2015 the data from National Family Health Survey (NFHS) 2015 carried out a survey in which they wanted to find how many households were having basic requirements like Washing Machines, ACs, televisions, and refrigerators and results were staggering. India’s 33% of washing machines are only in a few metro cities and 15% of AC are only in Delhi.
This Data should be surprising as close to half of India’s population still use firewood as fuel as per data from FutureIQ by Naveen Kabra of 2020. The idea of a middle class also fluctuates as it not only depends on how much you earn but also can be measured by how much you spend.
If we go by government data, if any person in India spends more than 200₹ a day or more than 6000 per month, he/she is a part of 5% of India’s population.
Inequality isn’t a new thing but India’s top 1% have around 40% of all wealth compared to the 3% that India’s bottom 50% have. To show the state of poverty in India we need to understand that any person who has assets worth more than 20 Lakh₹ (25000$) will be part of the 10% population.
The other problem being is that India’s major metro cities have insane wealth concentrated as compared to other parts of the country. If we go by the data of FutureIQ by Navin Kabra 87% of people living in metro cities are from the top 40% of the Indian population.
The question at the end that will need to be asked is why does the middle class matter. It has many answers and in general, it’s the backbone of the economy, sources of.
The middle class also boosts domestic consumption and plays a vital role in growth. The investment in education and saving that we usually associate with any good economy is primarily driven by the middle class. Hence we need to shrug off the idea that India has an incredible base of the middle class and except that India still is a poor country.