Middle-Class Moment

How big, really, is India’s middle-class? It depends on how you define middle-class: by income or by consumption.   

Foreign companies look at both parameters. They know that by income in purchasing power parity (PPP), the Indian middle-class has an urban bias though rural India is fast catching up. But when measured by consumption across a range of goods and services, India’s middle-class is large and growing.  

Let’s look at the data. According to the 2011 Census, 63.2 per cent of Indian households owned a mobile phone, 47.2 per cent owned a television set, 21 per cent owned a two-wheeler, and 4.7 per cent owned a four-wheeler. 

Since the 2011 Census is outdated, it reflects Indian ownership – and consumption – more than a decade ago. So turn to the more recent 2019-20 NFHS (National Family Health Survey).  

According to the omnibus NFHS, 93.3 per cent of Indian households own mobile phones, 67.8 per cent own television sets, 49.7 per cent own two-wheelers, and 7.5 per cent own four-wheelers.  

Even this data is nearly four years old so ownership numbers in these key categories would have risen, especially in two-wheelers, cars and SUVs. Clearly the optimism of foreign companies – in domains ranging from automotive and electronics to FMCG and white goods – appears justified.  

In an interview with Britain’s Financial Times (owned by Japan’s Nikkei group), Masanon Togawa, CEO of the leading white goods company Daikin, said: “India would turn into a market as giant as China in the future, as the middle-class and the wealthy are growing tremendously.”  

Not everyone agrees. The public data search engine howindialives.com, in an article in Mint, begins cautiously before displaying its cynical spurs: “In comparing the potential of the Indian market to that of China, due to the potential inherent in the spending power of the middle-class, Togawa was echoing what many, equally optimistic chief executives have said before. There is certainly potential in the Indian market to grow, with Indian AC ownership in the mid-single digits and with average summer temperatures set to rise in the long term due to climate change.”  

The caveat comes quickly and unsurprisingly: “But it has been apparent for some time that a bet on the rising size and spending potential of the Indian middle-class is a risky bet, not just for white goods manufacturers like Daikin, but for a range of other companies, such as those in e-commerce, or more recently, online food or grocery delivery. While there has been skepticism for some time on the spending potential of the middle-class, it is the next couple of years or so that will prove to be decisive in the fortunes of many such companies.”  

To examine both the size and spending power of India’s middle-class turn to average wealth per adult gleaned from various databases (including the 2011 Census, the 2019-20 NFHS and Credit Suisse’s Global Wealth Databook, 2022). 

India’s average wealth per adult works out to $14,804 (around Rs. 12 lakh). China’s wealth per adult is $72,553. The global average is $86,823.This comparision doesn’t factor the differences in per capita income by purchasing power parity (PPP). At current exchange rates, China’s per capita income of $10,500 is five times India’s $2,500. By PPP, however, the per capita income gap between China ($20,000) and India ($7,500) narrows from 5x to below 2.5x. That metric is what foreign companies see but Indian data analysts often overlook.    

The NFHS data shows that in 2019-20, 7.5 per cent of Indian households owned cars and SUVs. There are roughly 300 million Indian households. This means in 2019-20, when the NFHS data was compiled, 22.5 million Indian households could afford a car or SUV. That figure, given the annual growth in four-wheeler sales since 2019-20, has probably risen today to 30 million households with cars and SUVs costing an average of Rs. 10 lakh. 

India is now the world’s third largest auto market after China and the US with sales of cars and SUVs in calendar 2022 rising to 4.3 million units. In scooters and motorbikes, India and China were neck and neck in calendar 2022 with sales of 20 million units each.  

Since around 50 per cent of India’s households now own two-wheelers, this means that 150 million of India’s 300 million households possess scooters or motorbikes which cost an average of up to Rs. 1.50 lakh.  

Two conclusions follow. One, India’s consumption pattern is rising rapidly. Two, the size of India’s middle-class that can afford cars, SUVs, scooters, air-conditioners and television sets is also growing at a fast clip as lower middle-income earners join the consuming middle-class. 

But howindialives.com remains steadfastly glum. It says: “A middle-class person in India is pretty much in the top 10 per cent, if not 5 per cent of the Indian wealth distribution. And this is really the problem. Even today, 30 years after economic reforms, the slice of the population that forms a viable market for most companies, is really within the top 10 per cent of the population – in fact, far less than that.”  

Even if this determinedly pessimistic estimate of India’s middle-class population is taken at face value, these 150 million Indians still comprise one of the biggest consumer middle-class markets in the world.     

The Narendra Modi government tends to take this demographic slice for granted. Corporate taxes have been cut to 22 per cent and in some cases 17 per cent while personal taxes remain at over 30 per cent. An honest middle-class citizen pays a higher percentage of tax on her income then a corporation.  

As its numbers grow, India’s middle-class is becoming politically more assertive. It makes both economic and electoral sense for the Modi government to pay it the importance it deserves.  

The writer is the biographer of Rajiv Gandhi and Aditya Birla and author of The New Clash of Civilizations (Rupa 2014). He is founder of Sterling Newspapers Pvt Ltd., which was acquired by the Indian Express Group