Greatly Expanding Indian Middle Class

Rajesh Shukla    January 10, 2023

OPINION | The Times of India

In 2047, India will mark the 100th year of nationhood and it’s only natural that there is much curiosity about the economic wellbeing of the country’s population when we hit that landmark year. Today, the country boasts more than 4.3mn ‘crorepati’ households, equivalent to 23mn consumers. Millions are knocking on the doors to join this richie-rich bandwagon and they are spread all over the country. RICE’s report ‘The Rise of India’s Middle Class’ captures this unprecedented rise of wealth and offers pointers for the future.

INDIA IS growing immensely wealthy.  By 2047, if political and economic reforms have their desired effect, India has the potential to become the fastest-growing economy in the world, with a sustained conservative annual growth rate of between 6 per cent and 7.5 per cent. Average annual household disposable income is set to rise to about INR 20 lakh (US $27,000) at 2020-21 prices, while the population is expected to reach more than 1.66 billion by 2047. This growth will not only make the Indian Middle Class the biggest income group in the country in numerical terms, but it is also set to become the major driver of economic, political and social growth.

Consider this: by the end of this decade, the structure of the country’s demographics will change from an inverted pyramid, signifying a small rich class and a very large low-income class, to a rudimentary diamond, where a significant part of the low-income class moves up to become part of the middle class.

The PRICE report pegs the share of the lowest two income classes – destitute households (with an annual household income of less than Rs. 1.25 lakh or US$ 1,700) – will fall steeply from the current 8.9 per cent to 5.6 per cent - and aspirers (annual household income of between Rs. 1.25 lakh and Rs. 5 lakh or US$ 1,700 and US$ 6,700) - from 52 per cent to 38 per cent - by the end of this decade. That in itself constitutes a dramatic shift. This shift will transfer those who can’t afford most consumer products into potential buyers of entry-level durables and services. Corresponding with the fall in the number of destitute and aspirer households is the rise in middle class (from the current 30 per cent to 46 per cent homes) and the rich (from 3.5 to 10 per cent homes).

A vibrant and rapidly growing middle class has emerged, economically secure and growing in influence. Currently, there are about 432 million middle-class Indians, or one in every three in India belongs to this group. They belong to urban and developed rural households, have achieved economic security, and indulge in discretionary consumption. With annual household income ranging between Rs. 5 lakh (US$ 6,700) and Rs. 30 lakh (US$ 40,000) at 2020-21 prices, this middle class is growing at the rate of 7 to 8 per cent annually, and now accounts for close to half of household consumption.

Growth in the middle class will have a far-reaching impact. Absolute incomes may well be higher among the rich, but the numerical strength of the Indian middle class suggests that it will become the major driving force of India’s consumption story. The discretionary spending power of this burgeoning section of society could spur investment and generate employment, thereby boosting economic growth.

A stronger and more secure middle class is crucial for continuing India’s upward trajectory. The middle classes act as employers and employees, consumers and producers, and agents of political change. Representing 62 per cent of salaried and business owners, they generate many of the new jobs that employ the growing workforce, besides paying for nearly half of all taxes.

A focus on propping up the aspiring class that currently comprises 732 million Indians – 52 per cent of the population – can reap rich dividends in the run-up to 2047. The aspirer class is the group that is no longer poor but has not yet achieved middle-class status. Providing access to high-quality public services, good jobs and opportunities will enable the aspirer segment to join the ranks of the middle class. Significantly, their progress will ensure in reduction of economic inequality.

Among the measures that need to be taken, providing comprehensive social safety nets is at the top of the list. Regular earning opportunities, health protection, and pensions will be crucial factors. Further, strengthening tax policies, compliance by the current middle class and boosting new collections from an expanding middle class will ensure adequate financing for such investment.

 As Aristotle once said: “The best political community is formed by citizens of the middle class,” and “Those states are likely to be well administered in which the middle class is large”. This age-old wisdom may become increasingly relevant in India because as the middle class expands it may well become more politically engaged, acting as an agent of change and an important stabilising force. Thus, as India grows and becomes more globalised, the middle class is set to play an important role in shaping Indian society and politics, as well as its economy.