Sunday, June 27, 2004

The middle-class Indian

About a year ago, Aditi and I were having an argument about what it means to be a member of the middle class. She insisted that she was from a middle-class family; I claimed that she was too rich. I, on the other hand was obviously the middle-class one; upper middle-class perhaps (what a phrase!) but definitely not more than that.

It looks like we were both equally naive. Adu, if you're reading this, I apologise. Rediff has a lovely column by Ashwin Mahesh, Floundering on founding myths.
Before we can say that someone is middle class or not, we must first make a separate determination of what we mean by the term. I use the median income for a family (depending on sources, anywhere between Rs 3,600 and Rs 5,000 a month) as a guide, and contend that those whose incomes are within some range (say 20%) of this median are middle class.

This spread of incomes that can be justifiably regarded as middle class means that you and I don't belong in that category. A lot of urban families, when they refer to themselves as middle class, are plainly mis-stating the truth. There are good reasons for this. The tendency to compare one's economic standing to that of those who are better off than oneself is common. If we're not as rich as identifiable magnates (Tatas, Ambanis, Khaitans, etc.) or even rich enough to build large houses in fancy neighbourhoods, then we must not be affluent, right? Wrong. In comparison with the great majority of Indians, anyone who can read this column is probably in the 85th percentile of income or higher.

The dissonant sense of what middle class is can also be attributed to another reason. Today's conventional idea of what a middle class lifestyle is was not first developed in India, but in the West. A middle class family in the prosperous countries is identified as being able to afford many of the modern amenities within its regular income, and also able to secure a post-retirement reserve in some way. This is what we usually mean in India too -- that 'middle class' families are ones with washing machines, scooters, maybe even a second-hand automobile; things like that. This is the middle class of a different country, not India.

Even if one agrees to double the upper limit of the median income quoted and then consider a 25% spread, one gets a maximum monthly income of Rs. 12,500. I suspect that any Indian family with double that income (approximately Rs. 25,000) thinks of itself as solid middle-class, when it is nothing of the kind. Hits you hard, doesn't it?

So who benefited from the impressive economic growth, the booming Sensex? Not the middle-class Indian, surely; one doesn't invest in the stock market on a monthly income of Rs. 3,600. In fact, it frequently seems like the people who benefit from government policies are the upper-class Indians like you and me, even though we are presumably capable of helping ourselves. Sure, there are schemes for rural employment, subsidies and assistance for the poor. But depressingly often, funds are diverted and don't reach the intended recipients, shopkeepers hoard goods meant for public distribution. It's easy to exploit the real middle-class; they are often not aware of their rights and have no political voice.

"But they do benefit," you say, "that's what the trickle-down effect means. From the rest of the article: "
Politicians and policymakers insist that the engine of our growth is upper-class prosperity, and warn us against any move to derail this engine and unhinge the carriages it is meant to pull along. By this argument, subsidies for the wealthy are given so that they will in turn lift consumption and create employment, thereby indirectly benefiting the poor.
If you're a capitalist, you should be cheerleading increased access to credit as a way of powering up the economy, but it also means you have to ask -- and answer honestly -- who should get this increased access to credit for the economy to really kick into lasting high gear. Is infrastructure funding for large investments the critical area, or is access to personal credit for individual families -- especially the poor -- more important?

A typical middle class family in India will pay up to 50 percent of its income to settle debts at enormously high rates of interest in unregulated markets. Making cheap and regulated credit available to this section will drive consumption and economic growth much more reliably that trickle down ideas will. For the poor, their debt burden is even higher, and correspondingly the potential for money freed up from debt servicing is even greater. That's capitalism.

Another concern that should remain front and centre, if you're a capitalist, is return on investment. The government of India's own figures accept that large irrigation projects like dams have taken up two-thirds of the expenditure made for such purposes and irrigated only one-third of the lands brought under new use. Small projects that preserve more local control, on the other hand, have used one-third of the money but delivered two-thirds of the benefits. What's the capitalistic determination we should make from that observation about interlinking of rivers?

If freer markets and trickle-down economics are to be the underpinning of our hopes for the future, let us have an open dialogue about their merits. Why must we hope for investments in private enterprise to eventually yield gains for all, but cannot mandate state investments in schools and health centres that have immediate employment benefits as well as long-term competitive advantages for the nation?

In spite of all the abuse heaped on him (Uneducated! Politically Unaware! Votes in exchange for saris!), the Indian voter is often smart enough to realise which policies help him and when the government is only helping the rich. (See my earlier post on the subject.) Why else was Chandrababu Naidu, CEO extraordinaire, thrown out of office? Why else has the CPI(M) ruled over West Bengal unchallenged for decades? Go to the middle-class Indian for the answers.

Also, go to rediff and read the whole article.

1 comment:

m. said...

was going through your archives and came across this one. good post - glad someones discussing these issues! :-)