The Middle-Class Boom

Foreign investors visiting India after a gap of a few years are struck by three developments. One, infrastructure – the exponential growth of Indian airports, sea terminals, highways, housing, bridges, tunnels, metros, coastal roads. Two, digitalisation of the economy, including the billions of monthly instant cashless payments by UPI. Three, the low cost of tech services, ranging from 5G telecom to streaming video. 

Take 5G rates. According to the International Telecommunication Union (ITU) and I-Sec Research, India has the world’s lowest tariffs. The average monthly ARPU (average revenue per user) in India is around $2 (Rs 167). 

Now compare that with monthly 5G tariffs in other countries: United States ($43.6), South Africa ($19), Thailand ($15.8), Mexico ($10), China ($6.2), Brazil ($6.1), Indonesia ($5.8), Turkey ($3.4) and Bangladesh ($2.9). 

It’s not technology alone that’s priced lower than almost anywhere else in the world. The Economist’s Big Mac Index measures the price of goods and services across sectors – from groceries and Uber cab rides to flat rentals and hospital health care. In India the average cost is around 35 per cent of comparable costs across a range of goods and services, taking the US as a benchmark. 

That is why the International Monetary Fund (IMF) and the World Bank both use purchasing power parity (PPP) to compare per capita income across different countries. India’s per capita income at current exchange rates is $2,600. Using the PPP multiplier to adjust for differences in living costs, India’s per capita income is $7,200. That is still only 11 per cent of America’s per capita income ($66,000) but not as low as four per cent of US per capita income as non-adjusted figures inaccurately suggest. 

That doesn’t mean India has overcome poverty. It obviously hasn’t. Over 800 million Indians still get (and will continue to get for the next five years) free food under the Pradhan Mantri Garib Kalyan Anna Yojana. This means over half our population needs financial help to make ends meet. What about the other half? 

This is where the India story gets interesting. The size of India’s middle-class has long been contested. The general consensus is that the middle-class comprises roughly 10 per cent of the country’s population. That’s around 150 million people. 

Look at it another way. There are over 130 million demat accounts with NSDL and CSDL. Assume 50 per cent duplicate and inactive accounts. That would still mean around 65 million active demat accounts. 

Thus 65 million Indian families have at least one active demat account. At five members per family, that takes the middle-class universe of investors in stocks and mutual funds to over 300 million Indians. 

Look now for confirmatory ancillary statistics. Four million cars and twenty million two-wheelers are sold in India every year. The total number of registered passenger cars and two-wheelers in India was, respectively, 70 million and 210 million as of 2023. This means there are currently 280 million vehicles (excluding three-wheelers) registered with the RTO. 

It is a fair assumption that those families with active demat accounts and/or ownership of four-wheelers/two-wheelers are a part of the middle-class with reasonable disposable purchasing power. 

*Aspirational Class 

Beneath this middle-class of roughly 300 million, lies a growing aspirational class. Driven by advancements in technology, the uneven level-playing field has become flattened. The aspirational class is increasingly seizing opportunities to lift itself into a new middle-class. This will, over the next few years, expand the overall middle-class to around 500 million, encompassing tier-2 and tier-3 towns as well as rural India. It is the promise of a market of 500 million consumers by 2030 that has drawn global companies to invest in India. Technology is an enabler. It allows consumers to bypass poor physical brick-and-mortar infrastructure. 

Thus the Indian socio-economic pyramid will comprise a tiny tip of perhaps 10 million high net worth consumers, a growing bulge of 300 million people in the middle-class and a slice of around 200 million in the aspirational middle-class, totalling over 500 million people. 

These are not small numbers. The combined market of US and European Union (EU) consumers is in a similar range. Its purchasing power is obviously more but the rate of market and economic growth in India is significantly higher. 

Consider the US parallel. As Rohit Prasad, a professor at MDI Gurgaon and the author of The Last Dance of Rationality: Making Sense of an Unravelling World Order, wrote recently in Mint: “The US adopted an accentuated market-led growth pattern with the Ronald Reagan era of the 1980s. This led to a hollowing out of its middle-class. According to the Center on Budget and Policy Priorities, from 1980 to 2007, the year before the housing crisis, incomes of the middle 60 per cent of the US population increased by 47 per cent while those of the top 1 per cent quadrupled and next 19 per cent increased by 75 per cent. This led to a steep drop in the share of income enjoyed by America’s 20th to 80th percentile.” 

*Infra factor 

The growth of infrastructure will have an impact on consumption patterns in India’s middle-class. For example, the new Mumbai Trans-Habour Link (MTHL) will cut travel time between Mumbai and Navi Mumbai from two hours to twenty minutes. It will connect the Maharashtra mainland in Raigad to Mumbai, giving people from across the state easy access to India’s financial capital. There will be a spin-off effect on real estate development, industries and tourism. Other key projects across the country will benefit from the growing middle-class and its increasing disposable purchasing power. 

The combination of technology and infrastructure has the potential to transform India’s economic landscape. A flat playing field will spread India’s growth more evenly across the country’s social and economic demography and, in time, reduce inequality.

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