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Who belongs to India's middle-class anyway?

Finance Minister Nirmala Sitharaman's recent comments about the Indian middle-class has sparked talk about this famed category of people. But just who is a member of the Indian middle-class?

January 19, 2023 / 10:52 AM IST
The lack of a precise definition has not prevented economists and academics from trying to nail down the middle-class.

The lack of a precise definition has not prevented economists and academics from trying to nail down the middle-class.

Every year before presentation of the Union Budget, talk of the middle-class crops up in clockwork fashion, as Indians start hoping for some help from the finance minister in boosting their disposable income.

This year is no different. However, the impetus this time around has come from the government itself after Finance Minister Nirmala Sitharaman said on January 15 that she identified herself as a member of the middle-class and understood the pressures it faced.

But just what is the middle-class in the Indian context?

Defining the middle-class

If the finance minister of the country counts herself among the middle-class, a good argument can be made that some of the richest Indians too will fall in this category.

According to PRS Legislative Research, a Member of Parliament (MP) earns Rs 2.3 lakh per month, inclusive of Constituency and office expense allowance. This amounts to an annual income of Rs 27.6 lakh ― more than 16 times India's per capita income, as per the statistics ministry's first advance estimate for 2022-23.

Source: World Inequality Database Source: World Inequality Database

According to the World Inequality Database, an annual income of Rs 18.6 lakh or more in 2021 would put an Indian among the richest 1 percent of the country.

If one were to define the middle-class by income, our lawmakers are unlikely to be in this category. The problem, however, is that there is no universal definition of the middle-class ― not just in terms of income thresholds, but even whether income should be used as a parameter.

What of wealth, which also takes into account stock of assets, in addition to annual income? This can be a key consideration as a greater stock of wealth, or savings ― be it financial or physical ― can help tide over difficult times.

Senior citizens are a classic example, as they have little to no salary income, but live on their savings or incomes derived from these savings.

Again, as per the World Inequality Database, the net personal wealth of the middle 40 percent of Indians was just over Rs 3 lakh in 2021.

But let's return to income, which, as per a 2018 paper by the Brookings Institution, is favoured by economists when it comes to defining classes.

"This is partly for convenience, since data on income are widely available, and partly because income tends to be highly correlated with the other trappings of social class, such as economic security, education levels, and consumer preferences," it added.

Logic dictates one should look at the income distribution of Indians and zero-in on those in the 'middle'.

income tax returns distribution chart

According to data from the Income Tax Department for the financial year 2017-18, more than 81 lakh tax returns were filed by people falling in the annual salary bracket of Rs 5.5-9.5 lakh, with an average salary of Rs 7.12 lakh. These returns accounted for just over 28 percent of all individual tax returns filed for the year with an annual salary of at least one rupee.

Not feeling rich

The lack of a precise definition has not prevented economists and academics from trying to nail down the middle-class.

A November 2012 paper (PDF) by the Centre for Global Development, an independent research organisation, defined India's middle-class as that section which has "reasonable economic security in today's globalised world". Using data from the 2009-10 National Sample Survey, the paper estimated the size of India's middle-class at around 70 million people using a daily per capita income range of $10-50 in 2005 purchasing power parity dollars.

In March 2021, using a daily per capita income range of $10.01-20 in 2011 purchasing power parity dollars, global think-tank Pew Research Centre estimated India's middle-class had 66 million people, down from 99 million before the COVID-19 pandemic.

A more recent survey by Indian think tank People Research on India's Consumer Economy (PRICE), which defined a middles-class person as one with an annual income of Rs 5-30 lakh, found this category of Indians to have increased to 31 percent of the population in 2020-21 from 14 percent in 2004-05.

Interestingly, the Centre for Global Development's paper observed that India's middle-class "is crowded into the top decile, along with the much smaller number of 'rich' households".

"In that sense, India does not yet look much like the middle-class societies of Latin America, let alone the mature western democracies," the paper added.

A similar conclusion was reached by Rama Bijapurkar, Chairperson of PRICE, who said in her 2013 book, 'A Never Before World: Tracking the Evolution of Consumer India', that India's middle-class households are located between the 78th and 98th percentiles by household income ― which really makes them the upper class.

It is not surprising then that even seemingly well-off Indians feel they are part of the middle-class.

Siddharth Upasani is a Special Correspondent at Moneycontrol. He has been covering the Indian economy, economic data, and monetary and fiscal policies for nine years. He tweets at @SiddharthUbiWan. Contact:
first published: Jan 19, 2023 10:52 am