Klm:

(Dutch: Koninklijke Luchtvaart Maatschappij,

literally Royal Aviation Company

GROWTH OF THE INDIAN MIDDLE CLASS

The upper crust of Indian society consists of about 20 million people living in 3.8 million households
with an annul income of over Rs.10 lakhs and over per household. Interestingly this group consists of 36
billionaires whose total income is of $ 191 billion, which is one-fourth of India’s GDP.
National Council of Applied Economic Research (NCAER) made a study entitled "The Great Indian
Middle Class”, in which it has defined the middle class in terms of annual income ranging between a Rs
2-10 lakhs. Indian middle class has been growing in numbers as a reflection of the process of
development in the last five decades. The existence of a huge middle class had a very strong impact on
increasing the demand for consumer durables viz., refrigerators, washing machines, coolers, air
conditioners, mopeds, scooters, motor cycles, cars etc. This prompted the industrialists to make a
systematic study of the size of the middle class.

Size of the Indian Middle class

Source: NCEAR(2006), The great Indian Middle Class
Note: Figures in brackets indicate population of households in million

Class Income range Share of house holds Distribution of households %

(millions) The
2001- 02 2009-lO 2001·02 2009·10 Publication
Deprived Below Rs 90,000 135.4 114.4 71.9 51.3
of ‘The great
(731) (618)
Indian
Aspirers Rs90,000--Rs 41.3 75.3 21.9 33.9
Middle
200,000 (22) (405)
Class’ has
Middle Rs 2,00,000 - Rs 10.7 28.4 5.7 12.8
made the
Class 10,00,000 (58) (153)
Rich Over Rs 10 lakhs 0.8 3.8 0.4 1.7
following

(4) (20) points

Total 188.2 221.9 100.0 100.0 1. The

(1,014) (1,195) Middle
Class,
defined as households earning Rs 2-10 lakhs annually forms increased over 15 per cent per annum.
Between 1995-96 and 2001·02, the total middle class households increased forms 4.5 million to 10.7
million - an increase by 138 per cent. By 2009-10, they are expected to grow to 28.4 million accounting
for a total population of 153 million.
2. At the bottom of the middle class tier is the category defined as 'seekers' who have just moved into tlle
middle class bracket with income Rs 2·5 lalffis. These people have grown by a little over 15 % annually
between 1995-96 and 2001-02. This group of nearly 9 million households are the prinlary buyers of most
'durable goods and services, such as entry-level cars, colour television and refrigerators. However, tl1eir
AC penetration is low (13% only).

3. There is the category referred to as 'strivers' numbering 1.7 million households with an annual income
Rs 5·10 lakhs. They have a distinct profile as compared with their lesser cousins. They are growing at the
fast rate of 18 per cent annually. A large majority of them (50 per cent of such households own better
quality cars, larger apartments and better quality refrigerators, washing machines and ACs).

4. Rich class with annual income over Rs 10 lalffis accounted for only 0.8 million households in 2001-
02, but is expected to rise to 3,8 million by 2009-10, indicating an annual increase of 21.4 per cent. This
class buys high class durable goods - such as luxury cars, big bungalows, totally airconditioned
residences and offices as well as guzzling soft drinks and costly liquors.

5. As a result of economic prosperity resulting from GDP growth of the order of 6.1 per cent per annum
and the distribution of income in favour of the middle class and rich households, the demographic pattern
is undergoing a rapid change. Since the economy has grown during 2001·02 and 2005-06 at the rate of
over 7 per cent of GDP per annum, this process is being fuelled Consequently, the size of the middle
class will increase from 10.7 million in 2001-02 to 28.4 households by 2009-10 - average growth rate
12.9 per cent.

6. Urban households account for nearly two-third of the total households and rural households are a poor
one-third.
Obviously, growth of middle class is more or less an urban phenomenon. This is shown by the following
table.

Size of Different Income Classes in Rural and Urban Areas

Class Income Share of urban households Share of Rural households
Range % %
2001-02 2009-10 2001-02 2009-10
Deprived Below Rs. 18.2 15.8 81.8 84.2
 90,000
Aspirers Rs. 90000- 41.5 38.8 48.5 61.2
Rs200,000
Middle Rs.2,00,000- 64.8 66.6 35.2 33.4
Class Rs.10,00,000
Rich Over Rs. 10 77.1 77.8 22.9 22.2
Lakh
Total 28.4 31.2 71.6 68.8
Source: NCAER (2006), The Great Indian Middle Class

The table reveals that the of the rural households among the deprived will increase from about 82 per cent
in 2001-02 to 84 percent in 2009-10; similarly, the share of the 'Aspirers' will in rural areas from about 48
per cent in 2001-02 to 61 per cent in 2009-10. This implies that the pattern of growth developed after the
reform process has introduced is biased towards urban areas.

7. The distribution of households among various categories shows that the lowest income class (deprived)
is expected to fall from 72 % to 52 % - a dramatic shift of nearly 20 per cent. As against it, the aspirers
tend to show a rise from about 6% to 13% during 2001-02 to 2009-10. This process will fiercely promote
the middle classes and the rich.
8. Metropolitan towns like Mumbai and Delhi witnessed a fast growth in the Indian middle classes. The
middle class in Delhi grew from0.26 million in 1995-96 to 1.21 million in 2001-02 i.e. nearly a five times
jump in a span of six years. There was a boom of the middle class in B-class cities like Nagpur,
Vadodara, Ahmedabad, Surat and Vijayawada.

LPG and the middle class

The LPG policy initiated in mid 1991, suddenly put the spotlight on the middle class for its ability to consume.
The segment with the largest concentration of purchasing power in India was the middle class. This exercise
was important not only for the Indian government, which wished to advertise the strength of the untapped
Indian market to woo the economies of the developed world, but also for the latter, always sensitive to newer
pastures for the sale of their goods and technologies. The logic of economic reform dictated that the middle
class be analyzed for its craving for and ability to buy what the developed countries could sell to it. The
figures were ranging from 200 million to 500 million.

As per the National Council of Applied Economic Research (NCAER) estimate the Very Rich comprise about
six million people or a million households. Below them, the middle class consists of three segments: the
Consuming Class accounting for thirty million households or 150 million people, the bulk of whom could be
in the market for all kinds of consumer durables; the Climbers, consisting of fifty million households or 275
million people; and the Aspirants numbering another 275 million. The last two segments would 'need good
reasons to, first, buy the product you make, and next, to choose your brand'. The survey was intended to
'enable marketers to understand the real priority of their consumers' buying decisions rather than assuming
direct correlations between income levels and demand for specific projects,. The Confederation of Indian
Industry (CII), estimated that there are 180 million people in India with an annual income exceeding Rs
120,000.

The great Indian 'liberalized' economic machine was all set to roll with the middle class as its engine, but,
unfortunately, many of these very surveys revealed that the power of the engine was hardly in conformity with
the wishful thinking of the enthusiasts. According to the NCAER survey, households with incomes restricted
to between Rs 12,500 and Rs 40,000 per year, account for as many as 331 million people. Only 4.1 per cent of
the population, or 37 million people, have an income of over Rs 40,000 a year. And the rich, with an income of
over five lakh rupees a year, do not number more than 1.4 million. Other indices are equally sobering. The
number of cars in private possession is less than fourteen per 1000 households. In South Korea there are more
than 400 cars per 1000 households. In Mexico the number is 112, and in Brazil eighty-five. The number of
households with a telephone connection is about seven million, or less than four per cent of the total number of
households in the country. Only 5.5 per cent of the total population owns a colour TV. Even with respect to all
TV sets, including black-and-white ones, the comparison with South East Asia is instructive. Thailand and
Malaysia have 11.4 and 14.8 sets per hundred people respectively, as against India's 3.2 sets per hundred
people. The penetration of other consumer durables is as limited. Only 1.2 per cent of all households own a
video recorder or player; 1.8 per cent own a washing machine; and 1.3 per cent have a storage or instant
geyser. Only eighty-one per cent of middle-income households (sixteen per cent of the population) and fifty-
nine per cent oflower middle households (thirty-three per cent of the population) own even a fan. Figures for
consumer goods in mass demand, such as bicycles and wrist watches, are also low. Only one out of five
Indians possesses a wrist watch, and only forty-eight per cent of households own a bicycle. If India sells thirty
watches per thousand people, China sells sixty, and the world average is 150. In a country of over 900 million
people, with a middle class estimated in the scores of millions, there are only 1.6 million share holders and less
twenty-five million graduates.

Given the dominant traits of the Indian middle class in its evolution up to 1991, the impact of the policies of
economic liberalization was to liberate it from all restrains on its consumerist aspirations. For too long the
professed bias of State policy was for the poor of India. Now it was state policy to 'open' the economy to
consumerism of the middle class and a collective exorcism from the nation's psyche of the 'repressive and life-
denying nature of Gandhi's idealism. A life style replete with expensive cars, the latest consumer gadgets,
designer clothes and accessories, and five-star living became the role model for the middle class by the
liberalization process. The urge to move up the consumption ladder, to somehow put an unbridgeable gap
between the squalor of the poor and the plush material insularities of the rich, was always there. But now this
urge had the stamp of 'official' acceptance, the justification of an ideology. The economic liberalization that
has been sweeping across the country for the last few years has altered the lives of a large section of India's
burgeoning middle class. They have become far more international in their outlook and aspirations, more
sophisticated and liberal in lifestyle and attitudes, and certainly more adventurous and demanding in terms of
holiday and leisure activities.
The launch of lot of financial products to facilitate hire purchase invigorated the consumerist exuberance.
Almost every consumer durable could now be had on installments. Enterprising firms opened up to offer
exclusive services for helping with the right loan for the right product from the right source. The credit card
industry mushroomed into a 1600-crore business. More than a million Indians gave up generations of financial
conservatism, to become credit card holders. In 1995 Master Card grew by 106 per cent in India, the highest
growth in the Asia-Pacific region, Visa grew by an unprecedented ninety-four percent, and American Express
notched up a 102 per cent growth in 1994-95 and an even higher 135 per cent the next year. Consumer giants
spent crores on advertising; according to a survey, the top ten of these spent close to a whopping 600 crores in
1995 to better target the consumer. The advertisement budget of India's biggest spender on advertising,
Hindustan Lever, grew by twenty-two per cent in just one year. The advertisement expenditure of certain
sectors such as consumer electronics, of special interest to the middle class, grew in 1995 by as much as
seventy per cent as against a growth in sales of less than thirty per cent. The 'revolution' of satellite television
commenced in 1991; by 1995 it was estimated that more than eighteen million homes were wired to cable or
satellite. Suddenly, a great many middle-class people, long resigned to the monopoly of Doordarshan, had
more than fifty channels to choose from, and each of these channels was essentially supported by advertising.

The impact of the new lifestyle had marked impact upon consumable durables. The Fifth National Readership
Survey revealed that three-fifths of all urban homes had a TV set and that the reach of the medium has shot up
from nine per cent in 1990 to seventy-four per cent in 1995. Burgeoning aspirations wrapped themselves with
commendable felicity around the most expensive goodies: a Mercedes Benz at twenty-two lakh rupees, or an
Opel Astra at over six lakhs; thirty-two-and even forty-six-inch television sets and state of the art refrigerators
at over one lakh a piece; Italian suiting, 'imported' brand-name shirts and Mont Blanc pens at Rs 10,000 each.

Children absorbed the general mood of consumerist buoyancy far more easily. 'The vision of the good life
being drilled into viewers' minds is better internalized by children than the older generation' , was the
conclusion of researchers. It was also established that children from middle-class homes watched TV the most;
those from the upper-most class watched the least, for their options for recreation were more. From among this
new generation of TV children, seventy-five per cent said that they wanted to own the products advertised on
television.
• Ref: 1. The Great Indian Middle Class, Pavan K Varma, Penguine, 1998
• 2. Info from different Web sites.