The article mainly focuses on the Indian middle class consumer. Using material from the article, discuss the relationship between the middle class consumer and the middle class citizen.

Why has the Indian growth experience been different relative to its peers? Why has growth not created a middle class like other places (especially China)?

As per the report of HSBC bank, India nearly has 300 mn citizens in middle class which expected to become 550 mn by 2025. Despite this huge base of middle class in India, the growth experience of firm has been completely different from expectations. The returns in India has fall short of expectations. The initial growth of more than 100% in 2014 and 2015 in e-commerce sector raised the growth expectations while the actual growth now lies somewhere between 25-30%. The growth in other sectors have also been very slow as compared to other countries. The article draws examples from countries like Ireland, Kazakhstan, Lithuania where Zara has more shops tan India or Starbucks which opens one store in 15 hours in China as compared to two months in India.

The main reason lies in the difference between middle class consumer and middle-class citizen. Though the size of middle class has increased, most people have little money to spend. More than 80% of the Indian population earns less than $1700 while a latest iPhone costs $1400. The middle-class citizen spends most of its income on better education and health care facilities. National Council of Applied Economic Research defines a person to be belonging to middle class if s/he earns Rs. 250,000 in a year which amounts to less than $10 a day. According to article, most western firms assumed the size of middle-class to be same as that of other developing countries where these companies have succeeded in the past and the growth in GDP would be correlated with growth of middle-class. However, both these assumptions are found to be incorrect in the Indian context. This is primarily because of highly skewed distribution of wealth in India. The top 1% of India’s population holds almost 22% of the total wealth in India as compared 14% in China. This depicts the wide gap that exists between the rich and the poor in the country. A survey suggests that less than 3% of Indians own all five of the given luxuries: car or scooter, a television, a computer, refrigerator and air conditioner. Most of the households hold only one of the given luxuries. This is the true picture of Indian middle-class citizen as against the expected middle-class consumer. As opposed to other economies, the rich people in India are superrich while middle class do not have high spending capacity. Thus, the base of potential spenders in narrower in case of India. However, due to the high population of India, even this narrow base includes big consumer segment and attracts foreign companies.

The growth in Indian economy has not created a middle class like other places as China because of the following underlying reasons:

1.      Jobless Growth: A sudden jump from agriculture-based economy to service-based economy bypassing the manufacturing sector which is the most labour intensive in nature as has been the case with China for more than two decades. Since the service-based industry is highly skill based, lots of people are unable to find employment to sustain their basic needs let alone the luxuries.

2.      Income disparity and growing inequality: This sudden jump and lack of labour intensive sectors has also resulted into a huge income disparity with rich people getting richer day by day while poor people are becoming destitute. Top 10% of population constitute around 55% of the national income. Even though the Indian middle class is far from wealthy, the rich people are super rich.

3.      Over-dependency on government jobs and IT sectors: The government jobs which employ the major chunk for middle class in India are disappearing at a fast pace @ 100,000 jobs a year.

4.      Stagnant Salaries: Salaries have been stagnant at big corporates for quite a long time and the recruitment rates are dropping.

5.      Lower rate of urbanization: This has resulted in lesser migration of people from countryside to relatively better paying jobs in urban areas.

6.      Employment in Informal Sector: Major chunk of the workforce is employed in the informal sector which is not productive enough to pay salaries close to the middle-income group.

7.      Participation by Women Workforce: Women workforce participation is negligible because of social customs as well as the meagre situation at workplaces.

8.      Poor Healthcare and Education: Dismal conditions of healthcare and education sector in India  forces people to spend a major part of their disposable income on these facilities.