Feature Articles
Author: Abhijit Roy
Keywords: Economics, India, Sociology, South Asia, World History
How to Cite: Roy, A. (2018) “The Middle Class in India: From 1947 to the Present and Beyond”, Education About Asia. 23(1). doi: https://doi.org/10.65959/eaa.1499
The middle classes of all countries have been the key drivers of the global economy in the last century. During the past several decades, world economic growth has occurred, mostly because of increased consumption in the middle classes of the United States, Europe, and other advanced countries. This class has been considered a thriving and vibrant catalyst for economic growth. It provides a strong base that drives productive investment and is a critical factor in encouraging other social developments that also stimulate growth and foster expansion of elements that contribute to a healthy society.The middle classes constitute a critical market for most goods and services. A sizable portion of any nation’s tax revenue is collected either directly or indirectly from this group, and they also have an important role in any relative political stability that a country experiences. The significance of this class was best elucidated by the late Lester Thurow, the eminent MIT economist: “A healthy middle class is necessary to have a healthy political democracy. A society made up of rich and poor has no mediating group either politically or economically.” In this essay, various definitions of the middle class are offered, followed by a depiction of the status of this class in India from its independence in 1947 through the expansion of the private sector in India through liberalization, a policy change that created substantial economic growth that continues today. The future growth of this class in the next three decades and its implications for global businesses and world order are also discussed. How Is the Middle Class Defined? The middle class falls in the middle of the social hierarchy and occupies a socioeconomic position between the working and upper classes. The measures of what constitutes members of this class differ significantly among nations because of international cultural and economic variations. Examples of what constitute the “middle class” in a given nation are dependent upon purchasing power, educational levels, perceptions of who constitute “the wealthy,” and levels of social services, as well as other factors. According to most organizations, like the World Bank and the Organization for the Economic Cooperation and Development (OECD), people living on less than US $2 a day are considered poor. For those in the middle classes, the earnings typically lie in the range of US $10 to $100 per day, as expressed in the 2015 purchasing power parities.3 The US $10 lower threshold is preferred because it is five times the poverty line and individuals are less likely to fall back to poverty from this level of income. According to the World Bank, in 2015, 15 percent of the global population was considered poor, 56 percent in the low-middle income category, 13 percent in the middle income, 9 percent in the upper-middle income, and the remaining 7 percent in the high income categories. Earlier, in February 2009, The Economist declared that over 50 percent of the world’s population had entered the middle class, primarily because of explosive growth in emerging markets. This was mostly because of access by foreign (and some domestic) companies to cheaper labor in these countries as a result of liberal international trade laws. Many countries also experienced rapid urbanization when subsistence farmers left their farms to work in factories for guaranteed wages. In developing economies, distribution of socioeconomic classes can best be graphically represented by a heavily skewed distribution to the left of a distribution curve (with most people belonging to the lower classes). In developed economies like the United States, the social classes distribution more or less approximate a bell curve. The middle class in such societies has been defined as those with incomes between 75 percent to 125 percent of the median income. Some analysts have used a broader middle income range of 60 percent to 225 percent of the median income. Using the former benchmark, demographic studies indicate the percentage of American middle- class households declined from 28.2 percent in 1967 to 23.7 percent in 19834; while using the latter benchmark, the decrease in the US was from 62.4 percent to 55.9 percent over the same timespan.5 More recent studies have pointed to further polarization in the United States and some polarization in Canada that now appears to have reversed course or at least stabilized.6 Compared to the 2009 Economist report, other reports cite a more conservative estimate of the total number of people in the middle classes—OECD estimated 1.8 billion individuals in this group in 2010, while Credit Suisse’s Global Wealth Report 2014 had a smaller number (one billion) in the global middle class, with wealth anywhere between US $10,000 and $100,000. Between 1990 and 2005, the middle class grew from 15 percent to 62 percent of the population in China. In India, 50 percent of the population reached this status in 2015. The Middle Class in India: 1947–1990 India achieved independence from Great Britain in 1947. The population of the country at that time was 300 million. The first official census taken in 1951 showed the population to be 361 million, a growth of 13.3 percent since 1941. Hindus accounted for 303.6 million (84.1 percent), while Muslims and Christians were the next two largest groups, with 35.4 million (9.8 percent) and 8.3 million (2.3 percent), respectively. India was recovering from religious strife because of the Partition and the gross domestic product (GDP) of the country was a meager US $20 billion and GDP per capita was around $70. By 1990, the population of the country had increased almost threefold and risen to 870 million. The World Bank estimated the GDP of that year to be approximately US $317 billion and GDP per capita to be approximately $364. However, these figures were less than half of what they were for China at that point, even though the countries had approximately the same living standards in 1947. The country was governed by mostly one party (the Indian National Congress) and by the Nehru–Gandhi family, except for a brief period between 1977 and 1980. Economic policies mirrored the socialist policies of the old Soviet Union, and private enterprises were not encouraged. Most nascent industries, like automobiles and steel, were protected from outside competition by stiff tariffs on imports of these products. Several industries, including banking and coal, were nationalized and the overall growth rate of the country stagnated. India's share in the world economy (nominal GDP), which had declined from 24.4 percent in 1700 during the end of the Mughal rule to 4.2 percent in 1950, right after independence from British rule, further stagnated to around 3.5 percent of the world economy from the 1950s to 1990, while per capita growth averaged a meager 1.3 percent annually. Around the same time period, other Asian countries such as South Korea and Taiwan grew at a much faster rate of 10 percent and 12 percent, respectively, while India continued to follow central planning, which included extensive public ownership, regulation, red tape, and trade barriers. The size of the Indian middle class in India remained relatively small—it consisted of primarily the approximately five million workers mostly in the national, state, and local divisions of the government in the 1950s,7 with an additional six million added in the next two decades, with a count of 11.2 million in 1971, according to the government statistics.8 The 1970s and 1980s saw a move toward a mixed economy, with the private sector adding a significant number of jobs as well. The “colonial” middle class from the days of British rule prior to 1947 was slowly transformed into a “new” middle class, who increasingly began being defined in terms of consumption behavior, with the country moving gradually toward a market-led capitalist economy.9 As noted earlier, India tried democratic socialism for the first four decades after independence from the British, but this failed to produce robust growth. The growth occurred later in the 1990s once the country began following free market policies. The Growth of the Middle Class: 1991–2015 In 1991, after an economic downturn in the markets, the Indian government, ruled by the Indian Congress Party at the time, began opening up markets and launched an economic liberalization program.10 The substantial pace of growth of this class was primarily attributable to the incentivization for private capital investment and opening the economy to foreign investments. The total number of people in the middle class approximated thirty million in the 1990s, or less than 1 percent of the population. The percentage of those in the middle class began rising steadily to about 5 percent of the population in 2004.11"A healthy middle class is necessary to have a healthy political democracy. A society made up of rich and poor has no mediating group either politically or economically." — Lester Thurow
Until 1990, India’s GDP growth had always remained under 4 percent a year. During the same period, other Asian countries had much faster rates of growth, e.g., Indonesia (6 percent), Thailand (7 percent), Taiwan (8 percent), and South Korea (9 percent). South Korea’s long-term GDP growth, when contrasted with India’s economic growth, is a particularly stark example. In 1960, South Korea’s GDP was approximately four times as large as India’s; by 1990, the ROK’s GDP was twenty times the GDP of India. Since India’s 1991 economic reforms, the nation’s annual GDP growth rate has stabilized at a more robust growth of 6 to 7 percent per year.Since India’s 1991 economic reforms, the nation’s annual GDP growth rate has stabilized at a more robust growth of 6 to 7 percent per year.
Economists from Mumbai University in India defined the middle class as consumers spending from US $2 to $10 per capita per day.13 By this definition, approximately half of India’s population of 1.3 billion is now in the middle class. The fastest growth is in the lower middle classes, who spend between US $4 and $6 per day. This group now includes carpenters, street vendors, decorators, and drivers, amongst others. Most of these sectors have minimal barriers to entry, and many from the lower classes can easily “move up” to this group. The lower middle classes have approximately a third of their income left for discretionary spending after accounting for food and shelter. This allows them to buy consumer goods, get health care, and pay for their children’s education.The number of households in India with disposable incomes of more than US $10,000 has risen twentyfold in twenty-five years.
China has already tripled their share of the world GDP since 1990, while India has doubled it during the same timespan.
