A new Asian Development Bank report lauds the rise of the Indian middle class and projects it as the engine of global growth. The report states that the Asian middle class will dominate the next 2 decades. India will cross a billion by 2030. The report further states that Asia’s emerging consumers are likely to assume the traditional role of the US and European middle class as global consumers and play a key role in rebalancing the World’s economy. The traditional definition of middle class covers those who have not inherited wealth, hold regular jobs and enjoy a degree of financial security that allows them to consume and save and support the maintenance of law and order.
ADB report splits the middle class into 3 sub-sections: Lower middle class ($2 – $ 4), Middle class ($4 – $ 10) and Upper Middle Class ($10 – $20). The vast majority of the Indian Middle Class i.e. 82% of it or 224 million people fit into the first category. Since $ 1 PPP is Rs. 17,256. This means that the vast majority of the Indian Middle Class earns between Rs.1035 to Rs.2070. The report shows that middle class Indians Systematically define themselves as poorer than they actually are in surveys. Even by this stingy definition, in all of developing Asia- Only Nepal, Laos, Bangladesh and Uzbekistan have a middle class that is a smaller proportion of the total population than in India. China’s middle class is 63% of population and Sri Lanka’s 59%.
Questions:
a) Do you agree that Indian middle class will fuel global growth in the next decade? – 5 marks
b) Would you support the view that Indian middle class will rebalance the world economy? – 5 marks
c) Along with the rise of Indian Middle Class, will India attract more FDI? – 5 marks
Answers:
a) I agree that Indian middle class will fuel global growth in the next 10 years. The Indian middle class is rising and it is the engine of global growth. A large middle class market is found in India, which is not found in entire Western Europe. Thus, foreign companies are interested in Indian market. The middle class definition is those who have not inherited wealth, hold regular jobs and enjoy a degree of financial security that allows them to consume and save and support the maintenance of law and order. India will cross a billion by 2030. Foreign companies are steadily entering in India with varieties of well-known international brands making access to foreign brands for the middle class families.
b) Yes, the Indian middle class will rebalance the world economy. A new Asian Development Bank report, indicates that Indian Middle Class are likely to assume the traditional role of the U.S. and European middle class as global consumers and play a key role in rebalancing the world’s economy. The income of the middle class has increased, thereby spending and also savings. They invest in property and gold and majority of them are working in IT sector in India and abroad. Some middle class families in metro cities have more than one car. The middle class is catching up with the mall culture.
c) Yes, alongwith the rise of the Indian middle class, India will attract more FDI i.e. Foreign Direct Investment. With the Indian middle class having more purchasing power, FDI is sure to increase. FDI is present in consumer durables like televisions, refrigerators etc, FMCG and financial services. The new sectors of the Indian economy which are attracting FDI are telecommunications, insurance and banking. In the retail sector, there is FDI in single brand and multi-brand segments. India is not affected by the economic slowdown and this has encouraged foreign investors to invest their money in India. MNCs are willing to divert FDI to India due to continuous secured return of income.
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