How the middle class will play the hero in India's rise as world power

The middle class is the fastest-growing major segment of the Indian population in both percentage and absolute terms, rising at 6.3 percent per year between 1995 and 2021. It now represents 31 percent of the population and is expected to be 38 percent by 2031 and 60 percent in 2047. More than one billion Indians will make up the middle-class when India will turn 100. These are the figures from PRICE ICE 3600 surveys based on primary data.

Now, imagine.

Today, Western multinational giants, especially those in the FMCG sector, come to India looking for volume growth. India’s market size has a big pull. Imagine when in addition to even larger volumes, they also come to India looking for profit margins; such a large middle class will obviously give colossal purchasing power to India and the capacity for huge discretionary spending.

Imagine desi companies easily growing into global biggies supported by vast domestic scale. Growing disposable incomes, along with the rise of the middle class, will make India a consumption powerhouse.

Imagine more than half of India’s population being the middle class, with typical middle-class inclination for quality education, and exhibiting typical middle-class mindset of striving slowly, steadily but resolutely to make a class jump. Such a large number of college-educated professionals will surely unleash innovation and enterprise at a gargantuan scale. That would be like a dozen Bengalurus sprouting across India, with probably mohallas having their own unicorns. Add a dozen Hyderabads too where Indian techies won’t be doing merely the grunt work for the world’s biggest companies. They won’t be running the back offices but the brain offices.Class and religious conflicts that weigh down on India’s economic potential will likely lose their potency as the dominance of the middle class will also dictate political discourse. Politics, especially electoral politics, will likely revolve around typical middle-class issues such as health, education, infrastructure and jobs. As urbanisation grows, old forms of social affiliations such as caste will weaken, creating an egalitarian India, empowering a large chunk of India’s population which now remains chained to disabling discourses.

The People Research on India’s Consumer Economy (PRICE), an independent, not-for-profit think tank and facts tank, collected primary data in 2014, 2016 and 2021, covering over 40,000 households, both rural and urban from 25 states, for its PRICE ICE 360° surveys. The results paint a strikingly new picture of India.

By the end of this decade, the survey says, the structure of the country’s demographics will change from an inverted pyramid, sig- nifying 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 Middle Class.

Consequently, the income pyramid will have a smallish layer at the bottom comprising the Desti- tute and Aspirer groups, a huge bulge of the Middle Class and a big creamy Rich layer on top. The percentage growth is much higher for the upper income groups than the lower income groups. In fact, for the lowest income groups the growth could even be in the negative.

Estimates based on the survey suggest that the population of the Destitute and Aspirer groups will decrease from almost 928 million in 2020-21 to 647 million by 2030-31 and further to 209 million by 2046-47. The top income segment – the Rich – will soar from 56 million to an estimated 169 million and 437 million, while the huge bulk of the population will comprise a Middle Class of nearly 1.02 billion in 2046-47, up from 715 million in 2030-31 and 432 million in 2020-21.

ET Online

Within the category of the Indian Middle Class, the sub-group of Strivers—with an annual household income of between Rs 15 lakh and Rs. 30 lakh—has grown at 6.4 per cent annually between 2015- 16 and 2020-21. The Seekers, another sub-group of the Middle Class earning between Rs 5 lakh and Rs. 15 lakh a year, has grown by 4.8 per cent annually during this period.

ET Online

While the Middle Class has expanded quite rapidly, the most significant point is that there has been an even faster growth among various categories of the Rich. For instance, the number of Super Rich, earning more than Rs 2 crore in 2020-21, has gone up from 1.06 million households (6.1 million consumers) in 2015-16 to 1.81 million households (10.2 million consumers) in 2021.

This works out to an annual growth of 11.3 per cent. By 2030-31, the number of Super Rich households is expected to increase even faster, to 9.1 million households (46.7 million consumers), and by 2046-47 this is expected to go up to 32.7 million households (150 million consumers). The overall category of the Rich, or those with family income of over Rs 30 lakh in 2020-21, is estimated at about 11 million households comprising 56 million consumers, compared to nearly 7 million households with 37 million consumers in 2015-16. By 2030-31, this will go up to 35 million households with 170 million consumers. And by 2046-47, the number will grow to 100 million households with 437 million consumers.

ET Online

The number of Destitute households, or those with an annual family income of less than Rs 1.25 lakh at 2020-21 prices, has marginally declined between 2015-16 and 2020-21. By 2030, the num- ber of such households will drop to about 20 million, and to 7.2 million, mostly in rural India, by 2046-47. Due to lower growth in income levels for urban households between 2015-16 and 2020-21, the percentage of Urban Middle Class households dipped mar- ginally from 56 per cent in 2015-16 to 52 per cent in 2020-21.

ET Bureau

Absolute incomes may well be high- er among the rich, but the numerical strength of the Indian middle class suggests that it will become the driving force of the Indian economy, while its aggregate purchasing power will result in the creation of one of the largest markets in the world, the survey says. The discretionary spending power of this burgeoning section of society could both spur investment and generate employment, thereby providing a further boost to economic growth.

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, the survey says. 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 classes act as employers and employees, consumers and producers, and agents of political change. This is particularly true in the West, where the middle class plays a crucial and integral role in the functioning of democracy.