Power at the bottom of the pyramid

The emerging middle class — of India, China, Russia and Brazil — is ranked seventh in a list of 50 who matter most, compiled by a Fortune group magazine. A Goldman Sachs’ study says that more than 800 million people in these countries — outnumbering the populations of US, Western Europe and Japan — will qualify as middle class in the next decade, earning more than the equivalent of $3,000 a year. So this group is most likely to direct and dominate production and consumption patterns globally.
   With its growing buying/spending power, the emerging Indian middle class is going to be a force to reckon with. Significantly, Fortune gives top billing to “You — the consumers!” leaving Bill Gates, Richard Branson and other corporate honchos trailing far behind. The recognition of the power of the middle class — generally perceived to be at the bottom of the pyramid — is prompted by its show of spending potential reflected in the booming retail business, particularly in India.
   The metamorphosis of the usually reticent, frugal middle-class Indian from saver and scrounger to super-spender has happened not only because the volumes mirror increase in their numbers; it is also because phenomena like the BPO revolution — especially in the form of call centres — have suddenly made it possible for this segment to buy what it wants to without feeling worried or guilty.
   The average Indian has always been told to ‘tighten his belt’, abjure ostentation, ‘cut his coat according to the cloth’ and generally curtail the desire to consume more. The easy availability of credit, loans and aggressive retail marketing has changed all that. Gone are the days when to be ‘in debt’ — read taking a loan — was considered humiliating, a matter of shame. The mantra now is to spend, spend, spend — even if it means on a pro rata basis. India’s potential as one of the most lucrative markets in the world is an advantage we can use to get the best bargain.

Don’t take our middle class seriously

Can the great Indian middle class, all of 400 million, match the might of top US and European corporations? It’s been around for a while, and has thus far required substantial sops from the state to be a serious agent of long-term growth. The idea of creating a critical mass of people to drive the economy, in fact, preceded economic reforms in 1991 and started during the Rajiv Gandhi years. Handsome payouts to government and public sector employees created the conditions for the first consumer boom, to facilitate which output restrictions on a host of industries were lifted in the 90s. The boom ran out of steam after 1997, and a lot of industries were plagued by overcapacity. With rural output and incomes hardly growing at all, the manufacturing sector was faced with a demand crisis and slowdown. Manufacturing lacked the competitive edge then to sell its produce in world markets. So, the Indian middle class in its present numerical form is not enough to sustain long-term growth.
   An economy cannot grow at 8 per cent for all time to come on a restricted base in relation to the size of its population, given the trade and financial uncertainties in a globally integrated economy. The UPA government, realising this, seeks to promote rural incomes and augment purchasing power.
   True, India has serious economic potential, but a lot of that remains to be realised. Agriculture accounts for 25 per cent of our gross domestic product, but provides a livelihood to about 57 per cent of the population. Productivity in most crops has stagnated or fallen due to fragmentation of holdings and a host of institutional factors that have made farming an unattractive enterprise. Agriculture needs to improve its productivity to sustain more people. Institutional reforms in agriculture should create conditions for higher wages, which in turn would push up wages in industry and augment the purchasing power of large sections of the population that are hitherto not part of the middle class. Only then would we be able to say that India’s “middle class” has arrived.