No. 58, Sept. 2014
| A Middle-Class India?
II. The Problem of Defining the Middle Class
The first thing that strikes the reader is that virtually the entire discussion among economists on defining the middle class in ‘emerging economies’ pertains to levels of consumption expenditure or income. No doubt, income is a relevant indicator, but not when taken in isolation. None of them attempts to base the definition on the concerned section’s relation to the means of production, and its place in the social organization of labour.41 Thus we are left with a motley conglomeration of people linked only by (very broad) income group, but with little else to connect them in social terms. The problem with such a definition, as we shall see in the following chapters, is that it gives us very little useful information about the nature of the society.
These studies acknowledge that there is no generally accepted definition of the middle class. So each sets about devising its own definition. Broadly, they adopt one of two methods.42 A few define the middle class in relative terms – a class standing midway between the top and the bottom; most define it in absolute terms – as possessing a particular standard of living, as measured by income or wealth.
A. In relative terms
A large number of officially ‘non-poor’ people in India are clustered just above the official poverty line, so that even a small increase in the poverty line adds large numbers to the figure of the poor.44 Moreover, as the World Bank noted,45 not only did people move out of poverty during any given period, but others also moved back into it, for various reasons such as illness. A large section of those officially deemed ‘non-poor’ belonged to the same social group as the officially poor.
Difficult to separate from the poor
Vanneman and Dubey define individuals in households below half the median as poor, and those in households with income higher than twice the median as affluent. By this definition, the middle income group consist of the middle 60 percent of households, because 18 percent of individuals are in households with less than half the median income (i.e., are defined as “relatively poor”) and 22 percent are in households with more than twice the median income (i.e., are defined as “relatively affluent”).
Vanneman and Dubey clarify that although placing the thresholds at half and twice the median
is a conventional definition of relative poverty and affluence, this middle-income group is not what would be considered middle class in any global sense.... Most of these households depend on small farms or wage labor for their living. (emphasis added)
Rather, it is the top section that comes somewhat nearer a global “middle class”:
The real condition of households at the middle of India’s income distribution is brought out by the “multidimensional poverty index” (MPI), which measures deprivation in various elementary needs (education, health, and living standards): 55.3 per cent of Indians were deemed to be “MPI poor” in 2005. Another 18.2 per cent were considered to be “near multidimensional poverty.”49 In brief, if we were to define India’s ‘middle class’ in relative terms, it would be difficult to separate it from the poor.
This is precisely why the National Commission for Enterprises in the Unorganised Sector (NCEUS, also known as the Arjun Sengupta committee) devised the term “poor and vulnerable” for those with a per capita daily consumption of up to Rs 20 (in 2004-05). The cut-off was placed at two times the official poverty line of the time (this was also close to the figure for the higher of the World Bank’s two international poverty lines). The NCEUS found that this segment of “poor and vulnerable” included 77 per cent of the population. It termed the segment just above this, i.e., those whose consumption level was two to four times the official poverty line, “middle income.” The average per capita consumption expenditure of this group, which made up 19.3 per cent of the population, was just Rs 37 per day in 2004-05. The last group, which the NCEUS termed “high income”, constituted 4 per cent of the population, and had an average consumption of Rs 93 per day in 2004-05. That is, the NCEUS’s “middle income” group was nowhere near the median; rather it was in the top quarter of the population.
All the above is not to deny that there are degrees of poverty. Let us say we set aside the official poverty lines and acknowledge the glaring truth that the majority of the population are poor (if the word “poverty” is to have any meaning at all). Even so, the poor are not a homogenous mass; there are gradations even among the ranks of the poor. Basing itself on the official poverty line, the NCEUS had used the categories “Extremely Poor”, “Poor”, “Marginally Poor”, and “Vulnerable”; even if we decide to choose other terms, it would still be useful to measure different levels of poverty in order to understand its dynamics. Just as, in the caste system, there is a hierarchy even among the vast majority of the ‘low-born’, the social and political role of the very poor and the somewhat poor may differ, and even collide in the absence of a political leadership that can unite them in their basic common interest.
B. In absolute terms
Purchasing Power Parity and poverty
Estimates differ vastly according to definitions
India’s $2 middle class
However, the ADB does seem to have some qualms about its definition. It therefore divides its middle class into three segments, $2-$4, $4-$10, and $10-$20, and finds that the overwhelming bulk are in the first segment, “leaving them highly vulnerable to slipping back into poverty due to economic shocks.” In India’s case, of the 38.1 per cent figure, 22.3 per cent fall in the first category, 12.3 per cent in the second category, and just 3.5 per cent in the third category.
The World Bank’s Martin Ravallion – the man who devised the World Bank’s definition of poverty – faces a similar problem.54 He too takes $2 PPP/day as the lower threshold, and $13 PPP/day, the US poverty line at the time, as the upper threshold. In other words, if we were to take the PPP concept seriously, all those who qualify in Ravallion’s ‘middle class’ would be deemed poor in the US. He explains that he distinguishes between a ‘developing world middle class’ and a ‘Western middle class’; entry into the latter is on crossing the $13 level.55 On this basis, Ravallion finds that in 2005 India’s middle class was 263.7 million, or 24.1 per cent of the population.
The merit of the study by Abhijit Banerjee and Esther Duflo is that they try to find out what their defined ‘middle class’ do for a living. Taking the middle class as those with a consumption of $2 to $10 PPP a day, Banerjee and Duflo carried out surveys of 13 developing countries to discover “what is middle class about the middle classes”.56 Note that their upper threshold is $3 below the then US poverty line. Given the low bar they set for defining the middle class, it is not surprising that they find that the middle class are much like the poor:
The businesses of the Banerjee-Duflo middle class “are severely under-capitalized, because the middle class, much like the poor, does not have particularly good access to capital.” The two economists are puzzled in the failure of their ‘middle class’ to save from their income: “The striking fact about business investments, especially given the differences in potential to save, is how little difference there is between those of the middle class and those of the poor.” What are these middle class ‘businesses’?
Little wonder, as the Banerjee-Duflo ‘middle class’ businesses include fruit and vegetable vending, rag-picking, selling milk, and collecting cow-dung. They find that ‘middle class’ businesses “are also the most common businesses among those with consumption under $2 a day...” Perhaps the Banerjee-Duflo developing-country ‘middle class’ behave like the poor because they are poor, and they are unaware that, having been defined as ‘not poor’ by the World Bank, they should behave differently.
Finally, Banerjee-Duflo conclude that “The single most important characteristic of the middle class seems to be that they are more likely to be holding a steady job.” The instance they cite from their field trips is of a relatively better-off village in Udaipur, Rajasthan:
It would appear that zinc factory workers lie in the upper range of the Banerjee-Duflo middle class. Perhaps that should have alerted them to the fact that something was seriously amiss with their definition.
India’s 6 per cent middle class
(ii) The second approach, of setting the lower threshold at around $10 PPP, is taken by a number of studies.57
Table 1: Some Estimates of India’s Middle Class
* Except for Edward and Sumner; see text.
These studies arrive at low estimates for the size of India’s middle class, despite the fact that $10 PPP per day is quite a low international cut-off for defining the ‘middle class’: it is the average of poverty lines in Portugal and Italy, and is considerably below the poverty line of the US. Nevertheless, using this measure, India’s ‘middle class’ is to be found in the top 10 per cent, or even less, of the population. “In other words,” the World Bank notes, “being classified as middle class at the global level is equivalent to being at the top of the distribution in many low-income countries.”59 Meyer and Birdsall conclude that
Even more emphatically, Milanovic:
While Kharas, Ernst & Young, Goldman Sachs, and McKinsey do estimate India’s middle class at present to be small, the main focus of their studies is their projection that India’s middle class will expand very rapidly in the coming years. How do they arrive at these projections?Typically, they take the existing distribution of consumption; they project some rate of growth of national income; and finally they assume that the income distribution will not become more unequal, so that the entire curve simply shifts to the right. Since the vast majority of people are at the lower end of the existing income distribution, the number of those spending over $10 PPP/day must at some point suddenly boom, given the assumptions made.60
In passing, it is worth noting that, if indeed India were to develop a giant middle class with the monstrous pattern of consumption typical of its counterparts in the developed world, it would trigger many other political and environmental consequences for the world. Yet none of the studies celebrating the rise of the Indian middle class feels the need to explore these implications.61
It is unlikely that anyone thirty years hence will check whether or not these scenarios were borne out; and even if someone were to so check, no one gets penalized for wrong projections, so it is safe to predict almost anything fashionable today. The downturn in the BRICs economies during 2013 did not embarrass Goldman Sachs or its economists:
This disarming unconcern with the real world is shared by several studies, although they generally insert provisos in their footnotes. For example, Kharas tells us: “I have ignored natural resource constraints and the effects of climate change in this scenario. This may prove to be quite unrealistic but to take these into account would require a far more sophisticated model of global growth.” Apparently, the inability to create a realistic scenario should not constrain one from creating a scenario.
41. A few of them comment on the social role of the middle class, but only after having defined it on the basis of income/consumption layers. (back)
42. Another possible method of estimating the size of the middle class is to find out how many people consider themselves to be middle class. The available data on this question are not very useful. The World Values Survey does include, as part of its periodic surveys, the question “Would you describe yourself as belonging to the upper class, upper middle class, lower middle class, working class, or lower class?” Data regarding India are available on the website (www.worldvaluessurvey.org) for years 1990, 1995, 2001, 2006, and for some year during the period 2010-13. The latest data show that 37 per cent of those surveyed considered themselves to be lower middle class, and 18 per cent upper middle class; whereas in 1995, 31 per cent considered themselves lower middle class, and 25 per cent upper middle class. While more than half the surveyed thus termed themselves ‘middle class’, this figure has not grown at all over time. At any rate, the survey is not focussed on this question (which is just one out of more than 200 questions asked), and is of very limited use for our purposes.
A World Bank study (D. Narayan, ed., Moving out of Poverty: The Promise of Empowerment and Democracy in India, 2009. Overview at http://siteresources.worldbank.org/INDIAEXTN/Resources/Reports-Publications/366387-1244786182191/MOP-India-Overview.pdf.) addressed a related question, namely, what people consider to be poverty. It surveyed 30,000 villagers in 300 villages of U.P., A. P., West Bengal and Assam. Discussion groups of local people were asked by the study teams to identify the point at which households were no longer considered poor; this was used to draw a community poverty line (CPL). Not surprisingly, the study found that the official poverty lines (OPLs) systematically underestimated poverty. When the discussion groups in the villages were informed of the OPL in their state, many participants jeered and said that it was impossible to live on such a small income. Many expressed anger that the better-off people expected them, the poor, to live such a meagre existence. In the four states, 81 per cent of the villages placed the CPL above the OPL, and the gap was sizeable. (back)
43. World Bank, Perspectives on Poverty in India: Stylized Facts from Survey Data, 2011, p. 71. (back)
44. A. Sengupta, G. Raveendran and K.P. Kannan, “India’s Common People: Who Are They, How Many Are They, and How Do They Live?” EPW, 15/3/2008. (back)
45. World Bank, Perspectives on Poverty in India, p. 69. (back)
46.Vanneman and Dubey, 2013. (back)
47. See Vanneman and Dubey, 2010. Actually, Vanneman and Dubey, 2013, does not use a per capita measure, since such a measure does not reflect the economies of scale obtained by the members of a larger household. They therefore calculate a different measure, “equivalized annual income”, by dividing the household income by the square root of the number of members of the household. However, most studies use the per capita measure, and so we have quoted it from Vanneman and Dubey’s online data (at http://www.sup.org/html/book_pages/0804778248/appendices/Appendix-A.pdf ) to make comparison easier. (back)
48. Using the latest revision of PPP rates for 2004, the median per capita income comes to $1.15/day; the lower of the two World Bank poverty lines is $1.25/day. (The PPP rate for 2004 was Rs 13.65/$: Alan Heston, Robert Summers and Bettina Aten, Penn World Table Version 7.1, Center for International Comparisons of Production, Income and Prices at the University of Pennsylvania, November 2012.) (back)
49. United Nations Development Programme (UNDP), Human Development Report 2014. (back)
50. The $1.25 figure is the median of the official poverty lines of the 15 poorest countries; the $2 figure is the median of the official poverty lines of 70 countries. However that does not make either of them any less arbitrary. (back)
53. One study stands alone: Surjit Bhalla (http://www.oxusinvestments.com/files/pdf/NE20090106.pdf) says that the middle class starts at a lower threshold of $10 PPP per day, but still finds that the Indian middle class is very large – 38 per cent of the population in 2006. But then Bhalla has devised his own data set through a unique procedure which sizeably inflates estimates of incomes at every level. Despite the fact that his procedure is not accepted even by pro-establishment economists (see, for example, http://www.iie.com/publications/papers/ravallion0203.pdf and https://www.princeton.edu/rpds/papers/pdfs/deaton_worlds_poor.pdf), his work is cited by those who wish to downplay poverty and promote neoliberal policies. (back)
54. M. Ravallion, “The Developing World’s Bulging (But Vulnerable) “Middle Class”, 2009. (back)
55. Ravallion explains that if one were not to make such a distinction, one would get absurd results. However, since the fundamental justification for the PPP measure is that it enables meaningful comparisons across all countries, developed and developing, Ravallion’s term ‘developing world middle class’ questions either the PPP measure or the claim that there is a sizeable middle class in the developing countries; it cannot support both. (back)
56. A. V. Banerjee, E. Duflo, “What is middle class about the middle classes around the world?”. (back)
57. It is worth noting that there is no overlap between the ‘middle class’ of the studies described below, and the ‘middle class’ of Banerjee-Duflo; and there is only a small overlap with Ravallion’s definition. (back)
58. The other layers are the ‘global poor’ ($0-$2), ‘global insecure’ ($2-$10), and ‘global rich’ ($50+). (back)
59. World Bank, Global Economic Prospects 2007, p. 74. (back)
60. Kharas assumes that India (as well as China, and many other countries in Asia) will ‘converge’ with the developed countries, but he himself acknowledges that Brazil, with a much higher per capita income than India, stopped ‘converging’ decades ago. A slightly longer memory would remind us that Argentina was considered virtually a developed country till the Great Depression hit it in the 1930s, and it slid into the upper ranges of the Third World. (back)
61. By contrast, imperialist intelligence agencies actively study questions such as middle class growth and the growth of demand for food, fuel and water, with a view to shaping outcomes in favour of imperialism. The US National Intelligence Council asserts: “It is our contention that the future is not set in stone, but is malleable, the result of an interplay among megatrends, game-changers and, above all, human agency. Our effort is to encourage decisionmakers—whether in government or outside—to think and plan for the long term so that negative futures do not occur and positive ones have a better chance of unfolding.” See National Intelligence Council, Global Trends 2030: Alternative Worlds, December 2012. (back)
62. Sophie McBain, “Jim O’Neill interview: Why the Mints come after the Brics”, New Statesman, 23/1/14. (back)
All material © copyright 2015 by Research Unit for Political Economy