Understanding India’s Evolving Middle Class

India’s middle class first emerged in the early 19th century, when British policy gave rise to a small group of educated, English-speaking, upper-caste Indian elites. But the economic potential of the Indian middle class only became a major phenomenon in the 21st century, when it began to attract attention for its potential to drive global consumption. India’s modern middle class is more multidimensional, with economic growth since the 2000s spawning the formation of multiple middle classes – an “old” or established middle class and a new “new” middle class.

There is no consensus on the actual size of India’s middle class. Using the classification of those who spend between $2-10 per per capita per day, over 600 million people—half of India’s population—were in the middle class in 2012, up from less than 300 million or 27 percent of the population in 2000. Almost 75 percent of the middle class is made up of the lower middle class—those who spends 2-4 USD per per capita per day, a figure that is only slightly above the global poverty line.

If you use a higher income band – where a person is considered middle class if their daily income is approx. US$17-100 – 432 million Indians can be included in the middle class as of 2021, comprising 31 percent of the population, up from 14 percent in 2005.

The wide variation in income within India’s middle class provides considerable diversity in spending patterns. The lower rungs of the middle class spend a large portion of their income on private health care and education, non-essential consumer goods, and assets such as motorcycles and common household appliances. The upper echelons also spend a large proportion of their income on private health care and education, but also discretionary goods, entertainment, real estate and personal services. The upper middle class is more likely to own luxury assets such as cars, computers, air conditioners and washing machines.

Although income levels vary within the middle class, both subclasses are large and promising consumer markets. This makes them the driving force behind consumption and economic growth in India.

The liberalization, privatization and globalization of the Indian economy in the early 1990s not only opened up the Indian market to multinational corporations, but also introduced new high-paying jobs for the established middle class.

This changed the occupational structure of the middle class. The new jobs in sectors such as finance and information technology attracted many of the established middle class and saw a movement away from traditional government jobs. Affirmative action policies helped lower castes and the poor seize opportunities in government abandoned by the established middle class. Unskilled workers also found opportunities in the peripheral and lower rungs of the new private sector as food vendors, security guards, domestic staff and construction workers.

Recent policies and legislation, including the Mahatma Gandhi National Rural Employment Guarantee Act, have increased rural incomes, enabling rural India to also enter the middle class. By some definitions, the rural middle class is now larger than its urban counterpart.

The growth of India’s middle class is synonymous with changing political attitudes. During India’s struggle for independence, the English-speaking middle class was actively engaged in politics and critical in communication with the British. In the 1950s and early 1960s, India’s middle class identified strongly with the politics of India under Jawaharlal Nehru’s prime ministership. But as socialism in the Nehru era developed cracks, the middle class lost interest in politics. For politicians, the middle class was an insignificant source of votes because of its small size.

After India began to liberalize, the middle class moved into better paying job opportunities that globalization and privatization provided. From the 2000s, as the size of the middle class grew, it also became a significant vote bank.

Economic and social diversity among the middle class attracts different political agendas. The aspiring or ‘new’ middle class focuses on personal economic opportunities, while the established middle class demands cleaner air, better infrastructure and technological development. The nature of their engagement is also different. The established middle class is connected digitally, at the same time as they participate in local civic engagement and voting. The ‘new’ middle class is more likely to be involved in social mobilization.

Although the ‘old’ and ‘new’ middle classes use different channels of political expression, they are united by the common call for India’s development.

Economic growth in India has created a larger, more socially inclusive and politically engaged middle class. Much of the growth in India’s middle class is due to the lower classes climbing up the economic ladder. Given the unstable nature of some of their jobs, this group is vulnerable to falling back into poverty if economic growth slows.

In 2021, the Pew Research Center found that the Indian middle class was shrinking during the COVID-19 pandemic. The Government of India’s Household Consumption Expenditure Survey 2022-23 also found that while nominal rural household consumption expenditure increased at an annual rate of 1.62 percent between 2004-05 and 2011-12, it increased by only 1.02 percent between 2011 -2012 and 2012. –23. For urban areas, the corresponding growth rates were 1.85 per cent. and 1.12 per cent.

Even as the Indian economy recovers, it is important to ensure that there are enough jobs available for poorer Indians to climb the economic ladder. There are signs of rising unemployment and growth in unemployment in India despite rising levels of education. This could threaten social unrest. Recent agitation by the Maratha community, an upper-caste group in western India demanding Second Backward Class status to benefit from affirmative action policies, exemplifies the potential results of unemployment and a sluggish economy.

India’s large, heterogeneous and burgeoning middle class is a promising part of its domestic market. But there is a risk of a serious social crisis in the middle class if growth lags and does not create enough quality jobs. Meeting the aspirations of India’s ‘new’ middle class and ensuring that they are not left behind is a priority for the government in managing the country’s new social and economic fabric.

Sandhya Krishnan is an economist in the School of Development at Azim Premji University.

This article appears in the latest edition of East Asia Forum Quarterly‘India’s Sweet Spot’, Vol 16, No 1.

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