Unequal India
With India poised to win its incredible battle against abject poverty, it is bracing for another compelling public policy challenge: Inequality. EPISODE #133
Dear Reader,
A very Happy Monday to you.
Last week, People’s Research on India’s Consumer Economy and Citizen Environment (PRICE), released the final numbers of its survey. The report claimed that the country’s middle class will balloon from the present level of 432 million to 715 million by 2030-31—an increase of 65.5%. And, then to a staggering 1 billion in 2047.
Clearly, the middle class will emerge as the single biggest cohort in the country. What are implications for the consumer economy, political economy and public policy? I will try to answer these queries in this week’s episode. Do read and share your feedback.
The cover picture is sourced from Unsplash and taken by Gayatri Malhotra.
A big shoutout to Surendra, Vandana, Balesh, Monica, Gautam, Premasundaran, Aashish and Lakshmisha for your informed responses, kind appreciation and amplification of last week’s column. Once again, grateful for the conversation initiated by all you readers. Gratitude also to all those who responded on Twitter and Linkedin.
Unfortunately, Twitter has disabled amplification of Substack links and content—perils of social media monopolies operating in a walled garden framework. I would be grateful therefore if you could spread the word. Nothing to beat the word of mouth.
Reader participation and amplification is key to growing this newsletter community. And, many thanks to readers who hit the like button😊.
India’s New Demography
Last week, People’s Research on India’s Consumer Economy and Citizen Environment (PRICE), released the final numbers of its latest survey.
The report claimed that the country’s middle class will balloon from the present level of 432 million to 715 million by 2030-31—an increase of 65.5%. Further, it projects that if the conducive conditions endure, then the middle class will grow to a staggering 1 billion by 2047.
Consequently, it will be the single biggest cohort in the country. Displacing the cohort of the abject poor, which till as recently as the first decade of this Millennium aggregated over 500 million.
However, there is a very important subtext. This emerging cohort is not homogenous. Instead, it is very variegated.
The household annual income of the middle class varies between Rs5 lakh and Rs30 lakh). And, hence is very stratified. This intra-middle class inequality gets amplified when this segment of the population is compared with the two other cohorts—destitute (less than Rs1.25 lakh) and the rich households (household income greater than Rs30 lakh).
The PRICE report does not mince its words in describing the emerging public policy challenge:
“In terms of expenditure, the Middle Class households spend eight times that of Destitute households while the Rich households’ expenditure is nearly 25 times that of Destitute households.”
So, the good news is that India has overcome the worst in its battle against abject poverty. However, it is now facing an equally compelling public policy challenge: inequality.
Goodbye Poverty
As a regular reader of this newsletter you are aware that I have already mapped India’s amazing record in resolving the challenge of poverty.
Between 2005 and 2021, the country has lowered the incidence of poverty from 55.1% to 16.4%. In terms of numbers this adds up to 415 million. A staggering achievement by any metric.
India achieved this by unpacking the poverty challenge in several dimensions. Basically, the strategy focused on addressing deprivations in Health, Education and Standard of Living.
These deprivations are then further subdivided: the vertical of health is broken up into nutrition and child mortality; education is measured in terms of years of schooling and attendance; and, in the case of standard of living, the metrics used were access to cooking fuel, sanitation, drinking water, electricity, and housing—all of which are being delivered on turbo mode in the last nine years.
These beneficial outcomes have been reflected in the National Family Health Survey (NFHS)-5. The graphic below captures this:
The Inequality Problem
In his fictional book, White Tiger, which went on to win the Man Booker prize, Aravind Adiga, dives into India’s inequality challenge—to be sure, this is a global phenomenon.
Adiga basically writes how we have normalised inequality. So we don’t blink before placing an order upwards of Rs10,000 for a food delivery for a bunch a people we may have over. Little do we realise that this could well be the sum earned by the delivery personnel and the building guard who monitors the delivery. Everyone, including the guard and the delivery personnel, has merely learnt to accept status quo.
It is not that inequality has surfaced overnight. It is just that previously most Indians were poor without any hope of escaping poverty. There was a sliver of a middle class dominated by people working tenure jobs in government, schools and so on. And, finally you had the ubiquitous 1%.
The rise of the middle class has upturned this make-up of Indian society. The new reality is captured by the PRICE report when it mapped savings and expenditures over the four cohorts.
The aspirer class (annual household income of Rs1.25-5 lakh) saves little or nothing, those at the bottom of the pyramid are in a debt trap.
However, the middle class clearly enjoys surplus income, which it saves/invests.
Proxy data like the one on demat accounts—tripling in the last three years to 100 million—surge in consumption of FMCGs, big burst in domestic and international travel, suggest that the middle class is growing rapidly and powering the consumer economy.
At the moment their aspirations exceed their earnings.
Different Speeds
The latest Indus Valley Report (2023) from Bloom Ventures undertakes an excellent caricature of India’s existing socio-economic framework. The above graphic sum up this perspective about an India growing at different speeds.
First off, it shows that the macro numbers hide more than they reveal. It is that all of India is not growing at the same speed. Nothing abnormal about this—exactly how market-based economies work.
There is an India-1 of 120 million people ($12,000 per capita income); India-2 of 100 million people ($3,000 per capita income); and, India-3 of 1.2 billion people ($1,500 per capita income), unpacks the story of a country operating at different speeds and needs.
Significantly, India-1, the report adds, includes 25 million people with a per capita income of a very impressive $35,000—this is the segment we see with ostensible consumption habits.
The Solution
It is beyond the bandwidth of this newsletter to lay out a game plan to take the battle to inequality. Though, there is a cliche—well begun is half done—that can guide India’s public policy fightback.
But, for this public policy has to first acknowledge the problem. At the moment, the response is defensive. I recall a similar push back from the previous dispensation led by the Congress. This is simply baffling.
The thing is that the inequality challenge is not new. It existed in various forms. The inequality of access, controlled by caste, education, language and of course wealth, has dogged India for long.
What is different today is that people today have aspirations that they believe can be realised. So, the nature and challenge of inequality has scaled. They have the potential to roil electoral politics—strains of this are already visible.
And, this is largely because of the sustained fightback against poverty by delivering the basics of living: housing, cooking gas, electricity, drinking water, bank accounts and phones. For most of India’s first seven decades, access to these basics was a privilege. Today, you have more people inside the Indian economy looking out, rather than the other way.
The decline in poverty has meant the rise of the middle class. This potential can only be realised by empowering this nouveau middle class, what PRICE describes as aspirers. Or what the Indus Valley report identifies as India-3.
At the moment, almost all of public policy resources are directed towards pulling people out of poverty and keeping them out of it.
It will now have to pivot. And, this recalibration will have to be undertaken to a greater extent by state governments; because the infrastructure and capabilities for realising the aspirations of this emerging middle class reside in states.
However, to get there Indian public policy has to admit that inequality exists. Living in denial doesn’t help.
Recommended Viewing
Last weekend India celebrated the sixth anniversary of the Goods and Services Tax (GST)—the most transformative tax reform undertaken by India.
For the first time it economically unified the country and also avoided cascading of taxes, the bane of the previous indirect tax regime of excise duties, sales tax and other levies. Another big takeaway is that GST required the union and state governments to put their heads together, make sovereign concessions—a poster child for cooperative federalism.
To unpack the GST journey we spoke to Haseeb Drabu, economist, former finance minister of Jammu and Kashmir and a member of the GST founding team led by the late Arun Jaitley.
Haseeb was at this erudite best, while he critically examined the six-year journey of the GST. Do watch.
Sharing the link below:
Till we meet again next week, stay safe.
A very tricky problem to solve Anil. The natural course of the emerging situation, will result in the rich become richer and the economic divide becoming wider. The number of people in the middle class will increase and that is the only bright spot. The government will have to step in and introduce reforms in disbursement of land and housing to the people at the bottom of the pyramid and some instances of the same is already happening. A lot more needs to be done and hopefully the baby steps being taken now, continue. The social backgrounds of some key people in power, like the PM and UP CM are very humble and one hopes that they will empathize with the underprivileged, without curbing the initiatives of a free enterprise business economy. You have successfully tried to highlight the downside of rapid economic growth.
Dear Anil,
Excellent article! The Preamble of our Constitution says" We the people of India solemnly resolve to secure to all its citizens, Justice, Liberty, Equality and Fraternity".
Our slogan when Economic Planning was adopted in 1950s was "Economic Growth with Social Justice ".
I think all will agree that we have not been able to achieve our objectives.Your article clearly highlights the glaring gap between the rich and the poor.
Another worrying fact is that the Labour force participation rate ( LFPR) in India has declined over the last 15 years and the female LFPR is significantly lower than men's. For poverty reduction and equality, job creation is the only solution.