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The vulnerable middle class

The vulnerable middle class
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First Published: Mon, Aug 23 2010. 09 42 PM IST

Illustration: Jayachandran / Mint
Illustration: Jayachandran / Mint
Updated: Mon, Aug 23 2010. 09 42 PM IST
If the Asian Development Bank (ADB) is to be believed, the ranks of the middle class are growing in Asian countries. By 2030, consumer spending in Asia will hit the $32 trillion mark. This would be around 43% of the global share in consumption. And much of this spending is likely at the hands of the middle class.
The bank, to be sure, is also aware of the missteps in that march. If that happens, it would not be the first time. Asia after the 1997 economic crisis, Argentina after 1999-2002 and possibly Pakistan now, are all examples of populations marching randomly back and forth across poverty lines. India, of all Asian countries, should be specially worried.
Illustration: Jayachandran / Mint
In a chapter in its report Key Indicators for Asia and the Pacific 2010, the bank assesses the numbers of the “middle class”, defined as the class of persons consuming anywhere from $2-20 per day. In India, this number surged by 205 million between 1990 and 2008.
The problem is that most individuals in this consumption bracket are concentrated in the $2-4 bracket, the segment that is most vulnerable to economic shocks that can push them back into poverty. For example, in expenditure terms the $2-4 population constituted 22.3% of the population in 2004-05, much larger than the $4-10 segment (12.3%) and dramatically higher in number than the $10-20 expenditure class (2.4%).
A typical individual in the $2-4 class would be a daily wage earner, located in the services sector. That is an especially vulnerable position: Any shock, for example a decline in export orders, a lower demand for services delivered locally and other assorted reasons, could see such persons losing jobs quickly.
In spite of India’s achievement in moving these persons from below the poverty line, economic policies are biased against them. Most government expenditure in the social sector is geared for persons who spend less than $2 a day. While in the long run that promises to push them into the ranks of the middle class, in the short-run it means neglecting those already in the $2-20 range. This part of the middle class needs help in education and health, two areas where they end up spending a large part of their income. This spending could easily turn into savings, and, in turn, potential growth, if the government could devote some resources. The reasons why this has not happened are complex, but lack of effective political voice is certainly one of them. If they were to become poor again, it would be a pity for India and the world too.
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First Published: Mon, Aug 23 2010. 09 42 PM IST