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The Emergence of Middle-Class

  • Categories
    Society: Diverse Elements
  • Published
    16th Jun, 2022

Introduction:

  • The development or modernization that is being experienced in our country is not confined to the economy alone.
  • It has led to some fundamental changes in the social structure of Indian society.
  • As the process of change unfolds itself, new social groups and categories of people emerge on the scene.
  • The traditional structure of power at a different level of societal hierarchy has been transformed by the institutionalisation of the democratic system.
  • The last few decades of economic development and democratic governance have also transformed the structures of social stratification in India.
  • The earlier system of domination and subordination based largely on the principles of caste hierarchy and ownership of agricultural land has given way to a different kind of power structure. Though the caste and the ownership of agricultural land continue to be significant, particularly in the rural areas, they are no more the exclusive determinants of social stratification, in India today. A new set of power elite has emerged in India during the last fifty years or so.

Concept of Class and Middle Class:

  • The concept of class has been one of the most important categories in the Western societal structure. There has been a long tradition of looking at Western society through the conceptual framework of the class.
  • The social structure of Indian society has for long been viewed in the framework of the caste system. However, the development of a new urban economy and the changes experienced in agrarian relations in the recent past have, in a sense, made the institution of caste less significant, if not redundant. We should rather give more weightage to the "class” framework than to that of "caste". However, for a balanced understanding of contemporary Indian society, we need to use both the concepts- of class as well as caste. It is in this context of the changing structures of social stratification that the emergence of the middle classes in India should be understood.

Contribution of Western Thinkers:

  • The middle classes emerged for the first time in Western Europe with the development of the industrial and urban economy. The term middle class was initially used to describe the newly emerging class of bourgeoisie/industrial class. And later on, the term was used for social groups placed in-between the industrialist bourgeoisie on the one side and the working class on the other i.e., the skilled professional.
  • In the earlier times, the majority of 'producers' are the surplus product which is the source of their livelihood. 'Classes', in the Marxian framework, are thus defined in terms of the relationships of groupings of individuals to the 'means of production. In Marx's model, economic domination is tied to political domination. The middle classes for Marx were the self-employed peasants and the petty bourgeoisie.
  • Unlike Marx, Max Weber defines classes as groups of people who share a similar position in a market economy and by virtue of this fact receive similar economic rewards. Thus, the class status of a person, in Weber's terminology, is his "market situation" or, in other words, his purchasing power. The class status of a person also determines his "life chances". Their economic position or "class situation" determines how many of the things considered desirable in their society they can buy.

Middle Class in India During the British Rule:

  • 'In the West', the middle classes emerged basically as a result of economic and technological change; they were for the most part engaged in trade and industry. In India, on the contrary, they emerged more in consequence of changes in the system of law and public administration than in economic development, and they mainly belonged to the learned profession".
  • A large number of educated individuals were required to staff administrative institutions like servicing sectors such as the press and postal departments and Indian Railways. It was not possible to get all of them from Britain. So, in order to fulfil this need, the British opened schools and colleges in different parts of India, particularly in big cities like Calcutta, Bombay and Madras.
  • Those educated in these institutions were to not only work for the British but they were to also think like them. This intention of creating a native middle class that would become the carrier of Western culture in India was expressed quite openly by Lord Macaulay in 1935.
  • As the economy began to change in response to the new administrative policies of the colonial rulers, many of the merchants moved to newly emerging towns and cities and became independent traders. The growing economic activity gave a boost to trade and mercantile activity and some of the local traders accumulated enough savings and began to invest into the modem industry. The swadeshi movement started by the nationalist leadership gave a boost to the native industry. Apart from giving employment to the labour force, this industry also employed white-collared skilled workers. Thus, along with those employed in administrative positions by the colonial rulers, the white-collared employees of the industrial sector were also a part of the newly emerging middle classes in India.

Middle Class in India after Independence:

  • The term middle classes refer to the social group that exists between the upper classes and working classes. The middle class emerged in India under British rule. Industrialization and mass education contributed to the forming of the middle class. This newly formed middle class played an active role in India’s struggle for independence.
  • Though different sections of the Indian society had participated in the struggle for freedom from colonial rule, it was the middle classes that took over the institutions of governance from the colonial rulers.
  • It has been argued that the end of colonial rule did not mean a total break from the past. Much of the institutional structure that had developed during the colonial rule continued to work the independence within the ideology of the new regime. Thus, members of the middle class who were working for the colonial rulers did not lose much in terms of their position in the institutions of governance.

Middle Class in India:

  • The historical context of the development of the middle classes in India is quite different from that of the West. It was in the nineteenth century, under the patronage of the British colonial rule that the middle classes began to emerge in India. Though they emerged under the patronage of the British rulers, the middle classes played an important role in India's struggle for independence from colonial rule.
  • During the post-independence period also, the middle classes have been instrumental in shaping the policies of economic development and social change being pursued by the Indian State. Hence, there is a need to understand the middle classes, their history, their social composition and their politics.

Size and Composition:

  • There are no exact figures about the size of this class during the early years of Independence.  But presently, nearly 55% of the Indian population is expected to join the ranks of the middle class.
  • In fact, because India’s demographics are much younger compared to China and the US, India’s middle class could be the largest in the world (in terms of numbers of people) by 2025. It is not an exaggeration to say that future growth will depend on the rising middle class, and the evolution of the middle class will depend on growth.

Evaluation of Middle Class in India:

  • Nobel laureates Abhijit Banerjee and Esther Duflo calculated the thresholds for the Indian middle class based on per capita expenditure. With the global poverty line threshold set at $1.90 daily per capita expenditure, the lower-middle class is capped at 2$-4$, and the middle-middle class is between 4$-6$. With these numbers being inconsistent with the national poverty threshold, a correct evaluation of the middle class based on per capita expenditure remains incomplete.
  • The National Council of Applied Economic Research (NCAER) has set a cut-off for the middle class between the household income of Rs 2 Lakhs per annum to Rs 10 Lakhs per annum. A heterogeneous entity with both socio-economic vulnerabilities and accumulation of assets and wealth (towards the upper end of the spectrum), the middle class symbolises both power and depravity.
  • It is also characterised by certain values, mindsets, and educational and occupational choices. For instance, people belonging to the middle-class aim to have decent well-paying jobs or small businesses, hope to own a house of their own, seek to have a secure retirement, and want to secure the healthcare and educational needs of their family. Every generation of a middle-class household hopes that the next generation would be slightly better off.

Presently, there is no single definition or parameter on which the classification of the middle-class can be made. An absolute definition will help correlate income or asset-based indicators with multi-dimensional inhibitors of growth that generate inegalitarian structures and aid their sustenance.

GROWTH OF MIDDLE CLASS AFTER INDEPENDENCE:

India's independence from colonial rule marked the beginning of a new phase in its history. The independent Indian State was committed, in principle, to democratic institutions of secularism, freedom, justice and equality for all the citizens, irrespective of caste, creed or religion and at all levels - social, economic and political.

  • Government intervention: The government of India introduced various programmes and schemes for different sectors of the economy. The execution of these programmes required the services of a large number of trained personnel.
  • Growth in the tertiary sector: An increase in population, particularly the urban population, led to a growth in the servicing industry. Banks, insurance companies, hospitals, Hotels, press, and advertisement agencies all grew at an unprecedented rate, giving employment to a large number of trained professionals.
  • Agricultural Growth: The next stage of expansion was in the rural areas. Various development programmes introduced by the Indian State after independence led to significant agricultural growth in the regions that experienced Green Revolution. The success of the Green Revolution technology increased the productivity of land and made the landowning sections of the Indian countryside substantially richer.
  • Change in consumption pattern: Economic development also led to a change in the aspirations of the rural people. Those who could afford it started sending their children not only to English medium schools but also to colleges and universities for higher studies. Consumption patterns also began to change. 'Material goods hitherto considered unnecessary for the simple lifestyle of a farmer began to be sought.
  • Rural Middle Class: The process of agrarian transformation added another segment to the already existing middle classes. In ideological terms, this "new" segment of the middle classes, was quite different from the traditional middle classes. Unlike the old urban middle classes, this new, "rural middle class" was local and regional in character.
  • Dalit Caste Groups: Another new segment of the middle class that emerged during the post-independence period came from the Dalit caste groups. Government policies of positive discrimination and reservations for members of the ex-untouchable Schedule castes enabled some of them to get educated and employed in the urban occupations, mostly in the servicing and government sectors. Over the years, a new Dalit middle class has thus also emerged on the scene.

Areas of Improvements:                

  • The middle class, are now around 28 per cent of our population in 2021 as compared to just 2 percent in 1947. We also have other great advantages like natural resources, a well-educated middle class, and around 83 million Indians who speak English. There are other advantages, but these are the ones which have major implications on our economy.
  • According to the latest data from National Council for Applied Economic Research (NCAER), only 40 per cent of those in the middle class, comprising households with annual income above Rs. 88,800 annually (an estimate suggested by NCAER researchers) have piped water connections, and only 15 per cent get three hours of water supply every day. Just over half of such families have flush toilets and a similar percentage get 18 hours of electricity in a day.

FACTORS THAT WORKED IN FAVOUR OF THE MIDDLE CLASS:

IT Revolution:

  • The rise of the middle class was noticed as a phenomenon in the late 1980s and through the following decades as a factor allied to the IT revolution in the country. Medicine and engineering – are the two prime educational opportunities had become too expensive for the ordinary man to dream of. IT institutions mushroomed across the country with the promise of a lucrative career for any graduate who enrolled. These could be taken on alongside the traditional curriculum.
  • With India taking the lead as the world’s IT hub, young tech professionals soon started to go abroad and bring back big money. With money came the need for investments. Mutual funds, retail equity trade, insurance and other non-banking financial instruments saw phenomenal growth at this time, as did the consumerism culture of the country.
  • Growth in disposable income and credit culture put televisions, mobile devices, automobiles, real estate, and entertainment options well within the reach of the masses thus stimulating demand.

Education is Wealth:

  • The rise of the Indian middle class is based on one key factor – education. For the group, education is a ticket to better employment opportunities and higher salaries thus eventually translating into an ability to uplift the entire family. Thus, with education becoming the focal point of middle-class society, most families do not hesitate to spend more on their children’s education.
  • Presently, Indian students spent over 30 billion U.S. dollars on higher education abroad. Out of this, college tuition spending was the highest at around 17.5 billion dollars that year. The total higher education abroad expenditure is estimated to increase by over 80 billion dollars by 2024.
  • It is not just the elite but the middle-class families as well who spend their life savings to educate their children abroad. The country, however, fails to reap the benefit of this huge expenditure and education. The brain drain among the middle class is the highest. Most of these students who go abroad to study prefer to stay on and work in these countries. It also highlights the gaps in the Indian education system leading to supply-demand imbalance, and upward income mobility of Indian households, among others.

Changing Political Landscape:

  • With money, education, and awareness came political consciousness. The middle class started to stir up and awaken to the country’s political environment. It is now the most significant vote bank in the country – one that no aspiring political party can afford to ignore. Aware of the effect of its ‘demand’ on consumer goods, the middle class now has a political demand.

RISING IMPORTANCE OF THE MIDDLE CLASS IN INDIA:

India’s Favourable Demographic Trends:

  • The emergence of a large bulge of the population out of absolute poverty, and poised to enter the middle class, would create a new dynamic. Nearly 55% of the Indian population is expected to join the ranks of the middle class.
  • It is not an exaggeration to say that future growth will depend on the rising middle class, and the evolution of the middle class will depend on growth.

Increased private consumption and saving rate:

  • It is both private consumption and saving, fuelled by the middle class, which has driven growth.
  • Private consumption in India is almost 60% of the gross domestic product (GDP), and private consumption growth has accounted for 70% of Indian growth since 2000.

Private final consumption expenditure (PFCE) for the current fiscal year is projected to be Rs 140 trillion, or 59.3 percent of GDP.

  • Even though China’s middle class is currently larger than that of India, the former’s private consumption accounts for a smaller fraction of growth. Unlike the US, where domestic savings are declining—and it borrows surplus saving from abroad, in order to invest and grow—India’s domestic savings and investments are on the rise and are financing investments.

Households in India saved a massive Rs 7.1 lakh crore during the pandemic-stricken financial year 2020-21, a report by the State Bank of India (SBI). There was a tendency on the part of households to increase precautionary or forced savings as people were forced to remain indoors for the most part of the year due to nationwide lockdowns imposed to curb the spread of Covid-19.

Shift to more formal businesses:

  • The growth of the middle class is likely to be associated with a gradual shift from large-scale informality that characterises much of the services and manufacturing sectors today, to more formal, wage-earning and medium-scale businesses. Technological advances will spread more rapidly. Cities will grow as job opportunities cluster there. The spread of growth across the population will be broader if there is sufficient migration between states and from rural to urban areas.

Rise in Demand for Goods and Services:

  • The middle class is also demanding housing, shopping malls, and other infrastructure, and can afford to take an annual vacation, boosting domestic tourism.
  • The middle class saves for its own retirement, housing and children’s education, providing the resources for fixed capital formation, especially when there are two-income families. In short, most examples of rapid sustained economic growth coincide with the development and expansion of the middle class.

Increased Market size due to Increase in Consumption:

  • As industrialisation has fixed costs, and because international trade is costly, there must be a domestic market of a certain size to overcome these costs. The domestic market, in turn, is a function of the number of people with sufficient income to buy a product.
  • Once the size of the middle class passes a threshold size, a virtuous cycle is initiated: a bigger middle class spends more, leading to higher business profits, savings and investment, higher growth, and a larger middle class.
  • The Indian middle class will truly come into its own: By 2030, India will move from being an economy led by the bottom of the pyramid to one led by the middle class. Nearly 80% of households in 2030 will be middle-income, up from about 50% today. The middle class will drive 75% of consumer spending in 2030.
  • Digitally influenced consumption by Middle Class: In the digital financial services (DFS) sector, there is a recurring story told about India, that there’s a huge market, with immense potential. India’s government is engaged, proactive, and willing to take bold steps. There is lots of activity, lots of players, and lots of products.
  • "Connectedness" lower-middle-class will drive a significant difference in preferences, even at the same income level. As many as 50-70% of the most digitally connected consumers today, across income levels, already use digital platforms for product discovery and pre-purchase research. By 2030, more than 40% of all purchases will be highly digitally influenced, up from 20-22% today.
  • A section of India’s emerging middle class (EMC) also resides in less urban areas along the periphery of Tier 1 cities, referred to as Tier 2, 3, and 4 centres. Initiatives like the Jan Dhan-Aadhaar-Mobile (JAM) trinity and the launch of the Unified Payments Interface (UPI) for feature phones by the Reserve Bank of India (RBI), among others, are a game-changer in directing the consumption pattern.

EXPANDING ROLE IN ECONOMIC GROWTH AND SOCIAL PROGRESS

  • While it is clear that growth can create a middle class, the reverse is also true, and a large middle class can help sustain growth. The middle class has played a special role in economic thought for centuries.
  • Emerging as the bourgeoisie in the late 14th century, while derided by some for its economic materialism, it provided the impetus for the expansion of a capitalist market economy and trade between nation-states. Ever since, the middle class has been considered a source of entrepreneurship and innovation, setting up small businesses that make a modern economy thrive.

There are four key contributions that the middle class makes to economic growth and social progress:

  1. First, the middle class is a source of entrepreneurship. It is often claimed that small businesses and family farms—the heart of the middle class—made America great.
  2. Second, the middle class is a major contributor to savings and human capital, as savings rates and the willingness to invest in human capital are higher amongst middle-class households.
  3. Third, they strengthen the links with democracy, free press, education and fair elections.
  4. The fourth channel that makes the middle-class special relates to consumption. The expanding demand for consumer durables—cars, motorcycles, televisions, air conditioners, mobile phones and refrigerators—is already leading to an acceleration in manufacturing in India.

India’s Future Growth and the Middle Class:

  • There are many reasons to be optimistic about India’s future growth that will be driven by the rapidly rising middle class, young demographics and the next wave of globalisation. The middle class tends to be is well-educated, enterprising, and innovative.
  • Service-led growth: Unlike traditional models of export-led growth based on industrialisation, India has already marched ahead with a services-led growth, as technological progress has made services more tradable. Growth in Asia is strengthening, and India will benefit from neighbourhood effects—the fastest-growing markets will be closer to home.
  • Boost in Manufacturing: Despite its outsized contribution to the economy, manufacturing has not enjoyed the same prosperity as other sectors in recent years. But the initiatives like ‘Make in India’, Production linked incentive (PLI) schemes and Aatmanirbhar Bharat not only present a recipe for growth but also provides opportunities for the middle class in term of emperorship and employment generation.
  • Favourable Demographic Trends: India’s favourable demographic trends, which have raised the proportion of the workforce in the total population, have set the stage for a massive expansion of the middle class. The emergence of a large bulge of the population out of absolute poverty, and poised to enter the middle class, would create a new dynamic.
  • India would emerge with a middle class that is proportionately as large as that of the US Empirical evidence, based on India’s household surveys, changing demographics and favourable trends in urbanisation, shows that a massive shift toward a middle-class society is already in the making. The precise numbers are less relevant than the trends—and those seem to be strong at present.
  • Increased contribution towards Direct Taxes: In addition to 70 percent of consumer spending, the middle class also contributes 79 per cent of the tax base in India. The middle class is actually critical for India to go forward.
  • The introduction of the new economic policy and increasing globalization of the Indian economy brought the Indian middle class into new prominence. However, defining the class in terms of economic status alone will not be an adequate representation of the class situation in India.

Conclusion:

  • The middle class is claimed to be the ‘bird of gold’. India’s rising middle class is an engine of growth. They are associated with social progress—freedom of press, education and gender equality. A massive shift towards a middle-class society is already happening in India. The rising middle class is both a causal factor behind India’s improved economic and social outcomes—growth, education, home ownership, and social security—as well as a consequence of the rise in the middle class.
  • Almost a billion people will join the ranks of the middle class by 2025 if India can expand investments in physical and human infrastructure, declare independence from social evils, spur rural vitalisation, and reduce inequality. Though a large number of Indian people still live a life of poverty, it is the middle classes that have come and played an important role in the culture, politics and economy of India. The political and social consequences will depend on whether this middle class emerges simply as a social formation or as a self-conscious political force, whether progressive or possibly even reactionary.
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