India’s democracy turns 69 this week, and there is much to celebrate.
Incomes are growing, albeit modestly, millions of citizens have risen out of poverty, large and small enterprises are thriving, and foreign investors are taking notice. Additionally,the digital age has made a profound impact on all strata of society. Most importantly, democracy has prevailed time and time again in the face of significant challenges.
Yet India isn’t living up to its potential. It is still far from the noble mansion envisioned by Jawaharlal Nehru, the first prime minister of India, in August 1947.
India's economic transformation
The Indian government has started to put into place many of the right recipes to accelerate annual GDP growth toward its goal of 8-10%. Perhaps the most ambitious is the Indian Prime Minister’s, Narendra Modi, “Make in India” campaign, an initiative designed to increase the manufacturing sector’s share of GDP from 17% to 25%. Hitting this target would create tens of millions of better-paying jobs for low skilled workers annually – especially for the 150 million young people entering the workforce. Ultimately, it would help put to rest India’s chronic balance-of-payment challenges, eliminate poverty on a mass scale and attract more foreign direct investment.
However, “Make in India’s” fate is increasingly uncertain. Weak global demand is sharpening competition between countries which are similarly aspiring to accelerate economic growth through manufacturing. India faces intense competition from Asian countries such as Vietnam, Philippines, Sri Lanka & Bangladesh stepping into China’s shoes as cheap labour manufacturing options.
More alarming is how technology is changing manufacturing, a development likely to persist for years to come. New technologies are making manufacturing increasingly less labour intensive with a focus instead on capital. New research suggests that industrialisation, once a sure path to prosperity, may no longer be a reliable source of employment for massive numbers of low-skilled workers. [1]
How will India create new jobs and help its people prosper?
By democratising productivity with better access to basic infrastructure like potable water, reliable power; affordable transportation service networks; financial services; healthcare and the internet; professional and social networks. Currently shackled by low productivity due to the absence of critical conditions or resources they need to thrive, ordinary Indians are unable to tap into the modern global economy and climb the economic ladder. Eliminating these barriers is essential to building a prosperous and genuine middle class that will be an engine for sustainable economic growth in India.
Redefining – and re-focusing on – Middle India
India has a “middle class” problem that begins with how this cohort is viewed.
What is commonly referred to as “the middle class” in India has nothing to do with Middle India, the households located in the middle 60% of the income spectrum. In fact, the so-called Indian “middle class” are actually between the 78th and 98th percentiles by household income according to research conducted by a think tank, People Research, on India’s Consumer Economy. In other words, they are the upper class or more accurately-the “consumer class.” These households have enough discretionary spending power to be interested in goods and services that are commonly associated with the middle class in developed countries. [2]
In India, the top 20% households (62 million households comprising the consumer class), differs sharply from the rest of the population. It accounts for 55.5% of total household income with an average per capita GDP of US$3,982. In contrast, the remaining 80% of Indian households are left with an average per capita GDP of just under US$700. For 20 years, this consumer class has been the prime beneficiary of India’s partial economic opening and reforms. Over the same time, the government’s focus on income transfer and subsidies for the poor has benefited the bottom 20% households. Middle India, the 60% of households in the middle of the income spectrum – and the genuine (potential) middle class – has been neglected.
India justifiably prides itself as the world’s largest democracy. With respect to economic growth, however, opportunities for economic success have not been democratised. By fostering an actual middle class, India can begin the path toward ending poverty and inequality, and building that noble mansion where all her children may dwell.
[1] Frey, Carl B. 2016. Technology at Work V 2.0. Oxford Martin Programme on Technology and Employment.
[2] Bijapurkar, R. 2013. A Never-Before World: Tracking the Evolution of Consumer India. New Delhi: Penguin.
The views and opinions expressed in this article are those of the authors and do not necessarily reflect the views of The Economist Intelligence Unit Limited (EIU) or any other member of The Economist Group. The Economist Group (including the EIU) cannot accept any responsibility or liability for reliance by any person on this article or any of the information, opinions or conclusions set out in the article.
