India has the potential to become the fastest-growing economy in the world over the next three decades, with average annual growth of between 5% and 6%. Per capita income is set to rise to about US$38,000 at today's prices, while the population is expected to reach more than 1.7 billion by 2048. This growth will not only make the Indian middle class the biggest group in the country in numerical terms, it will also transform it into a major driver of economic, political and social growth.
By 2048, if political and economic reforms have their desired effect, the income pyramid will gradually develop into a 'fat lady' - with a smallish bottom of the deprived and aspirers, a huge bulge in the middle of the middle class and a big head of the rich.
Estimates based on PRICE's ICE 360 pan-India primary surveys suggest that the population of deprived and aspiring people will decrease from almost 1.1 billion today to 150 million in the 2040s. The top income segment - the rich - will soar from 30 million to an estimated 310 million, while the huge bulk of the population will comprise a middle class of nearly 1.25 billion, up from 270 million today.
As middle class numbers rise, so will their heft within the country. Today, the middle class accounts for 19% of the overall population. In three decades' time, that figure is likely to exceed 70%. The middle class will almost certainly account for a lion's share of total income too, while the share accruing to the aspirers and deprived will fall substantially.
Absolute incomes may well be higher among the rich but the numerical strength of the Indian middle class suggests that it will become a driving force within the Indian economy, while its aggregate purchasing power will result in the creation of one of the largest markets in the world. The discretionary spending power of this burgeoning section of society could both spur investment and generate employment, thereby providing a further boost to economic growth.
India should also benefit from its youthful and fast-growing working age population, a demographic dividend that will provide the country with the largest number of working age people in the world. This could have a material impact on domestic demand and output.
However, to maximise the potential of this 30-year demographic sweet spot, certain key changes are needed. These include sustained economic reform; a strengthening of macroeconomic fundamentals and institutions; and, crucially, mass education. If these are delivered effectively, the rapidly growing working age population should make a productive contribution to long-term economic growth. In the absence of a good education, however, young people will remain unemployable and a drag on scarce resources.
Assuming that reforms are initiated and India's middle class expands to a cohort of more than one billion people, the implications are profound. A country's middle class plays a pivotal role in the social and economic fabric because it participates in a wider range of economic activities than any other section of society. The middle classes act as employers and employees, consumers and producers, and agents of political change. This is particularly true in the West, where the middle class plays a crucial and integral role in the functioning of democracy.
Aristotle once said: The best political community is formed by citizens of the middle class, and Those states are likely to be well administered in which the middle class is large. This age-old wisdom may become increasingly relevant in India because as the middle class expands it may well become more politically engaged, acting as an agent of change and an important stabilising force. Thus, as India grows and becomes more globalised, the middle class may play an important role in shaping Indian society and politics, as well as its economy.
Powered by Capital Market - Live News
(This story has not been edited by Business Standard staff and is auto-generated from a syndicated feed.)