India: Everybody loves the Middle Class


Locals shop on April 14, 2008 in Bangalore, India. India's new middle class is more than 300 million, and growing.


Uriel Sinai

America's not the only country with a middle class problem. But where America's middle may be shrinking, India's is growing by leaps and bounds, even as politicians wrangle over the different ways they may or may not be getting squeezed.

The big political questions in India these days are a price hike for diesel fuel and a decision to open up the retail sector to foreign giants like Walmart.

Some economists, including the prime minister, argue that the fuel price hike is needed to reduce the budget deficit -- because the government makes up the difference between the market price for oil and the fixed price for gas and diesel in the form of a subsidy. Meanwhile, most everybody acknowledges that higher fuel costs will add to inflation, which is already biting Indian consumers pretty hard -- especially in the form of escalating food prices.

When it comes to foreign investment in retail, proponents say allowing Walmart and others to own 51 percent of domestic retail outlets will bring in billions of dollars in much-needed foreign exchange, helping to shore up the rupee. They believe that infrastructure investments by these firms will create an efficient, refrigerated supply chain, so that the 40 percent of Indian produce that now rots in transit will be able to hit the market. And they say the new stores and associated businesses (trucking, canneries, etc) will generate some 10 million quality jobs -- meaning formal sector jobs that pay the mandated minimum wage, at least.

On the other hand, critics worry that Walmart and others with massive buying power will create monopoly-like conditions for Indian farmers, and that predatory pricing will drive millions of mom-and-pop stores out of business (as happened in the US). The result being, as economist Jayati Ghosh has argued, a single Walmart store will result in a net loss of 1400 jobs.

All that's old hat if you're following the situation.  But here's where it gets interesting: None of this matters one iota to the country's 400 million poor people (or to the ultra rich).  So the sturm and drang in the media, and the posturing among the politicians, actually reflects a new political role for India's growing middle class -- which has always in the past been viewed as politically irrelevant due to their small numbers and general apathy.

Here's Anil Padmanabhan, a deputy managing editor of India's Mint business newspaper, on the change:

"Without saying so explicitly, all of a sudden the middle class is very important to the political parties," Padmanabhan writes.

"As a chattering class they always influenced public opinion and thereby weighed in indirectly on electoral outcomes. They continue to mutter about daily economic atrocities, but what has changed is their construct and spread. Earlier, it was mostly confined to the top metros or towns—which account for limited seats in Parliament—and were dominated by the salaried class."

"But all this has been changing for the last three decades as the economy first and aspirations later have taken flight. Like an incoming tide, till it is upon you, one rarely realizes the altered circumstance. The first flush of data released by the 2011 Census reveals that the urban areas now account for 31.16% of the population; it was 23.34% in 1981—the biggest jump coming in the last decade. This has been accompanied by a visible improvement in material circumstances (quality of transport, mobile phones and so on) of the populace."

"The growth in the number of towns in the last decade spurted by over 50%. In some states such as Kerala, the rate of growth of urbanization grew from 26% in the decade ended 2001 to 47.7% in 2011. To be sure, this includes census towns, large villages that mimic the demographic characteristics of a town, as opposed to statutory towns that have a municipal administration. The data reveals, as reported earlier in Mint, that between the 2001 and 2011 censuses, the number of statutory towns rose by 242 to 4,041, while census towns almost trebled to 3,894. This distinction based on definition is unimportant."

"Instead, what matters is that the middle class has spread its wings in an unprecedented manner. What binds this heterogeneous lot is aspirations. Their presence in census towns could potentially redefine conventional rural voting patterns. Especially since the lower middle class, which has defined the expansion of the middle class, always votes; something that may be crucial in the general election of 2014. It pays, therefore, for parties to position oneself as their vanguard through such symbolic fights over policy change while continuing to sing paens for the aam admi (common man). In politics, it is not what you are doing that is important, but what you are seen to be doing."

And that means the "debates" between Manmohan Singh, Narendra Modi and Mamata Banerjee will increasingly start to sound like tonight's sparring between Mitt Romney and Barack Obama.

(Up next: Highlights from Mint's terrific series on India's so-called "census towns" -- the mostly invisible provincial centers of the economic boom).