The Indian Middle Class- some data, some views

The Indian middle class is emerging real strong and is surging ahead as a force to be reckoned with. The success story of India is to a great extent the story of the growth of this class. The Indian middle class was around 15% in 1996, and today it has galloped to 37% at present.

The two major visible aspects of the revolution that has happened in India are the role of IT sector and the women of the society in last two decades or so. The increasing participation of woman in the labour force to sectors that suit it well, have and will have a profound impact in the future of the nation in increasing the value addition to the traditional middle class with increased take home salary as well as living standard.

The McKinsey Global Institute (MGI) has published a new study. Here are some findings.

If India continues its recent growth, average household incomes will triple over the next two decades and it will become the world’s 5th-largest consumer economy by 2025, up from 12th now. Can one think of the scenario if the growth rate hovers around 10% or goes higher up? There may be constraints, but why can’t China be benchmarked?

In 2005 private spending reached about 17 trillion Indian rupees ($372 billion), accounting for more than 60 percent of India’s GDP. In this respect, India is closer to developed economies such as Japan and the United States than are China and other fast-growing emerging markets in Asia. Further, the aggregate consumer spending could more than quadruple in coming years, reaching 70 trillion rupees by 2025, according to the study. The life of the average Indian will change vastly by 2025.

Households earning $1 per person per day

In 1985, 93 percent of the population lived on a household income of less than 90,000 rupees a year, or about a dollar per person per day; by 2005 that proportion had been cut nearly in half, to 54 percent. By McKinsey’s estimate, 431 million fewer Indians live in extreme poverty today than would have if poverty had remained stuck at the 1985 level. May be, If India can achieve above 9 percent annual growth over the next 20 years, there will be none living a life of extreme deprivation.

Rural India has also benefited from this growth: extreme rural poverty has declined from 94 percent in 1985 to 61 percent in 2005, and it will drop to 26 percent by 2025 (if GDP grows at around 7%).
Today only 29 percent of Indians live in cities, compared with 40 percent of the Chinese and 48 percent of Indonesians, and the study projects the level of urbanization will increase to only 37 percent by 2025.

Middle Class

India will witness the rapid growth of its middle class-households with disposable incomes from 200,000 to 1,000,000 rupees a year. That class now comprises about 50 million people, roughly 5 percent of the population. By 2025 a continuing rise in personal incomes will spur a tenfold increase, enlarging the middle class to about 583 million people, or 41 percent of the population.

By 2025 the Indian middle class will dominate the cities. And about three-quarters of India’s urbanites will be part of the middle class, compared with just more than one-tenth today. About 400 million Indian city dwellers-a group nearly 100 million people larger than the current population of the United States-will belong to households with a comfortable standard of living.

And with better affluence, the middle class will certainly bring about some major changes in the governance and society that may be difficult to foresee today.Pawan Verma writes so correctly in the introduction of his newly revised edition of “The Great Indian Middle Class’: ” As India appears to be finally emerging as a global power, one overriding sentiment that infuses the middle-class world-view is a sense of pride.”

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