Dateline 2031: India's Middle Class Will Make It Much Richer

Rajesh Shukla    November 12, 2023

OPINION I The Secretariat

Imagine a place that is home to a middle class as large as, or larger than, the combined population of the United States, Germany, Britain, France, Italy, Spain and the Netherlands. It would be the darling of global retailers, a magnet for investors and, of course, a much-celebrated economic powerhouse. Yes, by 2031, India could be that sought-after marketplace.

If the Indian economy stays on its current growth trajectory, its middle class would swell to 165 million households by 2030-31 from an estimated 91 million in 2020-21, according to findings of a nationwide survey.

The ICE 360 Degree Survey, conducted by the author of this article, defines a middle class household as one with annual income in the range of Rs 5 lakh-Rs 30 lakh at 2020-21 prices.

Additionally, the number of rich households – with annual incomes above Rs 30 lakh – would grow at least three times, from 11 million in 2020-21 to 35 million in 2030-31, the survey suggests. Middle class households are projected to grow at a 6.1 per cent clip, while the rich households will likely grow at a pace twice faster – 12.7 per cent.

The ICE (India’s Consumer Economy) surveys are aimed to generate integrated longitudinal data (interconnected, consistent and up-to-date) to provide a 360° view of progress of households and people on financial conditions (income, expenditure, saving and borrowings), living conditions, access to public goods, amenities, state welfare, health, education, occupational conditions, social and occupational mobility and inclusion in the market economy. The latest survey, held in 2021, gathered data from a random sample of more than 40,000 rural and urban households spread across 22 states and three union territories.

The steady expansion of the Indian middle class mirrors the broader economy’s spectacular growth over the past three decades following the economic liberalisation program of the early 1990s.The economic transformation that came in the wake of opening up the economy has not only significantly augmented the purchasing power of the Indian middle class but also added millions to their ranks.

Although marketers and companies have looked at this class mostly from an economic and transactional standpoint, their emergence has also altered the socio-cultural fabric of the nation, redefining the aspirations and ambitions of the Indian consumers.

At a time when the global economy is battling sluggish consumption growth, countries like India and China hold out much hope for producers of goods and services around the world.

More importantly in the Indian context, where the growth story is currently driven by consumption, the middle class will play a crucial and probably deciding role going forward. Its discretionary spending power holds the key to spurring investment and generating employment, which is key to sustaining high growth.

Today, India is largely made up of Aspirer households – with annual incomes in the range of Rs 1 lakh-Rs 5 lakh – whose numbers totaled around 161 million in 2020-21. By 2031, the Aspirers would have been overtaken by the Middle Class.

At the bottom end of the pyramid, there will be a drastic reduction in the number of Destitute households, or the poor, from 45 million today to 20 million households in 2031 as poverty elimination programmes yield results.

This change signifies a huge transformation in the profile of the consuming classes of India.

A $5.2 trillion Consumer Spend Economy by 2031

India has been evolving as one of the world’s most dynamic consumption environments and is expected to maintain steady economic growth. Growth in income will transform India from an aspirers’ economy to one led by its middle class. Consumer spending is expected to grow from $1.9 trillion now to nearly $5.2 trillion by 2031.

The middle class and high-income (rich household) segments will be at the centre of this massive growth in consumption. These two segments will drive 55 per cent ($1.82 trillion) and 31 per cent ($1.03 trillion) of all incremental consumption respectively.

The trend towards urbanisation will pick up pace over the next decade. By 2031, 41 per cent of people will be residents of urban India. If we take urban agglomerates into account (meaning cities along with adjoining rural areas that are highly urbanised but continue to be classified as rural), more than a majority of India can be considered urban by 2031.

The top eight metros and 54 boom cities/towns will be significantly more prosperous than smaller cities. Simultaneously, rural India is on its way to becoming more urbanized which in turn leads towards increased income and growth in consumption. By 2031, this ‘new’ rural India will be contributing 55 per cent of incremental consumption.

Metros, Boom Towns, ‘New Rural’ To Drive Future Consumption

India’s growth patterns are more diverse than what has been conventionally acknowledged. The transformation taking place in household income, expenditure and savings is occurring at a rapid pace all over the Indian landscape. Infrastructure, connectivity and transit networks have allowed many poorer regions to catch up with their prosperous counterparts.

While the main metros remain the country’s richest cities, the growth areas lie in second tier cities like Surat, Ahmedabad, Pune, Nagpur, Ludhiana, Kozhikode, Thrissur, Kota, Tirupur, Indore and Kochi.

The rise of Developed Rural is a significant milestone in this journey towards prosperity. Our findings show that there are nearly 150 such districts across India, of which 41 per cent are located close to metro cities. Thus, Bangalore, Delhi, Gurgaon, Chandigarh all have Developed (‘New’) Rural clusters within their boundaries. Others like Meerut, Kozhikode, Bathinda, Jamnagar are in proximity of large cities.

Metros, Boom Towns, but most significantly Developed Rural, will steadily increase their share of India’s income and consumption and give momentum to India’s growth story. By 2031, Metro households share of income will be 18 per cent, that of Boom Towns 15 per cent while that of Developed Rural will be 22 per cent. In terms of share of expenditure, the percentages for Metro, Boom Towns and Developed Rural are 17 per cent, 14 per cent and 20 per cent respectively.

Pivotal Role for Middle Class

India is on the cusp of a tremendous opportunity for both economic progress and improvement in the general well-being of its citizens. As the Middle and Rich classes fuel consumption over the next decade, poverty elimination is well within the grasp of the nation.

A faster pace of urbanization is creating new pockets of prosperity both in urban and rural areas.

Assuming that reforms are initiated, and India’s middle class expands to a cohort of more than one billion people, the implications will be profound.

A country’s middle class plays a pivotal role in the social and economic fabric because it participates in a wider range of economic activities than any other section of society. The middle class acts as employer and employee, consumer and producer, and above all as a critical agent of political change and social progress.

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