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Business News/ Opinion / World Bank on upward mobility into India’s new middle class
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World Bank on upward mobility into India’s new middle class

A study shows there has been considerable upward mobility among both the poor and vulnerable sections of the population

8.5% of India’s population moved up from the so-called vulnerable category to middle class over these five years and 13.9% improved its status from poor to vulnerable. Photo: BloombergPremium
8.5% of India’s population moved up from the so-called vulnerable category to middle class over these five years and 13.9% improved its status from poor to vulnerable. Photo: Bloomberg

One of the reasons for the drubbing given to the Congress in the recent national and state elections is the disenchantment of the so-called neo middle class with its policies. A recent World Bank paper (Addressing Inequality in South Asia by Martin Rama, Tara Béteille, Yue Li, Pradeep K. Mitra and John Lincoln Newman) provides fresh insight on the rise of this new middle class.

The study divides the population into three classes—the poor, the vulnerable and the middle class and then compares households in these categories between 2004-05 and 2009-10. The conclusion: there has been considerable upward mobility among both the poor and vulnerable sections of the population.

The chart shows that 0.8% of the total population saw its status improve from the poor to the middle class category between 2004-05 and 2009-10. That’s not all—8.5% of India’s population moved up from the so-called vulnerable category to middle class over these five years and 13.9% improved its status from poor to vulnerable.

True, there were quite a few people who slipped into the poorer classes, testimony to the precarious nature of livelihood for most Indians, but the proportion of people in the middle class went up from 16.8% of the population in 2004-05 to 20% by 2009-10. The proportion of the poor, too, declined. And even for those who failed to make it, there was always the example of people they knew who had made good, so the notion of upward mobility being a possibility persisted, bringing about a considerable change in political attitudes.

This trend occurred in both rural and urban India, but it was in the towns that opportunities to become part of the middle class were higher. For instance, 11.3% of the urban population upgraded itself from the vulnerable category to middle class over the period. As the report puts it, “Rural jobs allow people to escape poverty; urban jobs are a ticket to the middle class."

What were the drivers of upward mobility? One big reason was the increase in non-farm jobs in rural India. Non-farm activities accounted for the entire expansion of employment in rural areas between 2004–05 and 2009–10. The report says that wages of rural non-farm workers were 30-50% higher than wages of agricultural labourers in the 2000s. Underemployed labour in agriculture found new sources of income in non-farm activities.

The other important factor has been migration within the country. About 28.5% of men working as casual labour in their villages were able to become regular employees after migration. Of those unemployed or out of the labour force, more than a third was able to get regular employment after migration. Increasing urbanization has helped, as upward mobility is much stronger in urban than in rural areas.

Also, despite what we would expect, the World Bank report says upward mobility among scheduled castes and scheduled tribes is on par with the rest of the population. It says, “mobility among Muslims is similar to that of higher-caste Hindus, whereas mobility among Scheduled Castes and Scheduled Tribes and among Other Backward Castes has become higher." The old caste and communal forces are losing their hold, as more and more sections of the people feel they can better their lot. The belief that they, too, can aspire to the good life also means that the older politics of reservations and doles is becoming less relevant. It is not just current incomes that influence voting behaviour, but also perceptions about social and economic mobility. People who have seen friends and relatives get good jobs in cities are unlikely to be satisfied with government handouts, but would instead want increased job opportunities in towns and cities. When economic growth faltered and these expectations were dashed, frustration set in. This was true of the old middle classes as well, as they compared the plentiful jobs of the boom years with the stagflation of recent years.

Ironically, it is under the Congress-led United Progressive Alliance government (which ruled India between 2004 and 2014) that poverty fell dramatically, while recent reports say India has finally managed to make a dent in malnutrition as well. More people were able to migrate to urban areas and the middle class expanded. The inability of the government to fulfil their aspirations, especially as the economy slowed dramatically in the last couple of years, led to disenchantment. The government became a victim of its earlier success. The Congress was unable to realize that rural realities had changed and it was unable to address the aspirations of the new upwardly mobile voter.

The lessons are clear. Upward mobility has resulted in vastly enhanced aspirations. High growth and more and better jobs are essential to meet them.

Manas Chakravarty looks at trends and issues in the financial markets. Your comments and
feedback are welcome at
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Published: 19 Oct 2014, 11:53 PM IST
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