Understanding India’s Evolving Middle Classes – Analysis

By Sandhya Krishnan

India’s middle class first emerged in the early 19th century, when British policies gave rise to a small group of educated, upper caste, English-speaking Indian elite. But the economic potential of the Indian middle class only became a major phenomenon in the 21st century when it started to attract attention for its potential to drive global consumption. India’s contemporary middle class is more multidimensional with economic growth since the 2000s spawning the formation of multiple middle classes — an ‘old’ or established middle class and an emerging ‘new’ middle class.

There is no consensus on the actual size of India’s middle class. Using the classification of those spending between US$2–10 per capita per day, over 600 million people — half of India’s population — were in the middle class in 2012, up from less than 300 million or 27 per cent of the population in 2000. Nearly 75 per cent of the middle class is comprised of the lower middle class — those spending US$2–4 per capita per day, a figure that’s only slightly above the global poverty line.

If using a higher income band — where a person is considered middle class if their daily income is approximately US$17–100 — 432 million Indians can be included in the middle class as of 2021, comprising 31 per cent of the population, up from 14 per cent in 2005.

The wide variation of income within India’s middle class, yields a substantial diversity in spending patterns. The lower rungs of the middle class spend much of their income on private healthcare and education, non-essential consumables and assets such as motorbikes and basic household appliances. The upper rungs also spend a large proportion of their income on private healthcare and education, but also discretionary goods, entertainment, property and personal services. The upper middle class is more likely to own luxury assets such as cars, computers, air conditioners and washing machines.

Although income levels vary within the middle class, both sub-classes are large and promising consumer markets. This makes them the drivers of consumption and economic growth in India.

The liberalisation, privatisation and globalisation of the Indian economy in the early 1990s not only opened the Indian market to multinational firms, but also introduced new high-paying jobs for the established middle class.

This changed the middle-class occupational structure. The new jobs in sectors such as finance and information technology attracted many of the established middle class and saw a move away from traditional government jobs. Affirmative action policies helped lower castes and the poor to grasp opportunities in government vacated by the established middle class. Unskilled workers also found opportunities in the peripheral and lower rungs of the new private sector as food vendors, security guards, domestic staff and construction workers.

Recent policies and legislation including the Mahatma Gandhi National Rural Employment Guarantee Act, have boosted rural incomes, enabling rural India to enter the middle class as well. According to some definitions, the rural middle class is now larger than its urban counterpart.

The growth of India’s middle class is synonymous with changing political attitudes. During India’s struggle for Independence the English-speaking middle class was actively engaged in politics and critical in communication with the British. In the 1950s and early 1960s India’s middle class identified strongly with India’s politics under the prime ministership of Jawaharlal Nehru. But as the socialism of the Nehru era developed cracks, the middle class lost interest in politics. For politicians, the middle class was an insignificant source of votes because of its small size.

After India began to liberalise, the middle class moved into better-paying job opportunities presented by globalisation and privatisation. From the 2000s, as the size of the middle class expanded, it also became a significant vote bank.

Economic and social diversity among the middle class attracts different political agendas. The aspirational or ‘new’ middle class focus on personal economic opportunities, while the established middle class demand cleaner air, better infrastructure and technological development. The nature of their engagement also differs. The established middle class are digitally switched in, while also participating in local civic engagement and voting. The ‘new’ middle class is more likely to be involved in social mobilisation.

Although the ‘old’ and ‘new’ middle classes use different channels for political expression, they are linked by the common call for India’s development.

Economic growth in India has created a larger, more socially inclusive and politically engaged middle class. A large part of the growth in India’s middle class is attributable to the lower classes climbing the economic ladder. Given the unstable nature of some of their jobs, this group is vulnerable to falling back into poverty if economic growth falters.

In 2021 the Pew Research Centre found that the Indian middle class contracted during the COVID-19 pandemic. The Indian government’s 2022–23 Household Consumption Expenditure survey also showed that while rural nominal household consumption expenditure increased at an annual rate of 1.62 per cent between 2004–05 and 2011–12, it increased by just 1.02 per cent between 2011–12 and 2022–23. For urban areas, the corresponding growth rates were 1.85 per cent and 1.12 per cent.

Even as the Indian economy recovers, it is essential to ensure that there are enough jobs available for poorer Indians to climb the economic ladder. There is evidence of increasing joblessness and jobless growth in India despite increasing levels of education. This could threaten social unrest. Recent agitation by the Maratha community, an upper caste group in western India, demanding Other Backward Class status in order to benefit from affirmative action policies, is an example of the potential outcomes of joblessness and a sluggish economy.

India’s large, heterogenous and burgeoning middle class is a promising component of its domestic market. But there’s a risk of serious social crisis in the middle class if growth falters and fails to create enough quality jobs. Meeting the aspirations of India’s ‘new’ middle class, and ensuring that they are not left behind, is a priority for government in managing the country’s new social and economic fabric.

• About the author: Sandhya Krishnan is an economist in the School of Development at Azim Premji University.
• Source: This article appears in the most recent edition of East Asia Forum Quarterly, ‘India’s Sweet Spot‘, Vol 16, No 1.