Home / Market / Mark-to-market /  Case of the missing middle class

In India, a fast-growing middle-class population is supposed to be the main factor driving its growth potential. But a new survey by the Pew Research Centre pours cold water on that belief.

The report, A Global Middle Class is More Promise than Reality, says the middle-class population has indeed increased, but questions whether the increase is significant. The global middle class has risen from 7% to 13% of the total population between 2001 and 2011. But even now, nearly two-thirds of the world’s population are still in the poor or low-income brackets. The study defines poor as those living on less than $2 per day, low income from $2.01 to $10; middle income from $10.01 to $20; upper middle from $20.01 to $50; and high income on those earning more than $50 a day.

The distribution of the increase in the middle class is skewed too. China, South America and Eastern Europe have made significant gains, whereas Africa and many Asian countries have lagged.

Take India. Its poverty rate fell from 35% in 2001 to 20% in 2011, but the share of the middle-class population rose to only 3% from 1%. Many people did move up from poverty to low income but not beyond. What’s more, the study says that even in the low-income bracket, most were closer to the $2 per day mark than the $10 threshold required to become middle class.

In contrast, China’s poverty rate fell from 41% in 2001 to 12% in 2011, but its middle-class population has risen from 3% to a significantly higher number of 18%.

While this raises questions about India’s hopes of a burgeoning Indian middle class, it does not quite square with the optimistic projections of consumption potential. Companies remain optimistic about medium-and long-term growth prospects. But note that parents of foreign-owned companies have become a bit sceptical about growth in emerging markets.

The study itself notes that estimates can vary, for one, depending on the income criterion used. This study’s calculations have used purchasing power parity, adjusting incomes for different prices in different countries. What is clear from the report is that, in comparison to the global average and other emerging countries, India has fared poorly.

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