How a changing middle class can alter economiesHow a changing middle class can alter economies
July 21, 2015


India and China’s swelling middle class is what advertisers, marketers and investors have counted on for a bigger return on investment, higher profits and soaring sales.  Its her growing population with a rising income, fattening consumption levels and ballooning aspirations that have lead companies to the hungry navel of the sweet and sour neighbours.

Yet, a recent PEW study shows that while both China and India have succeeded in pulling 356 million Chinese and 133 million Indians out of poverty between 2001 and 1011, China has managed to move a majority up the value scale – from poor to middle income. Whereas, India has just about managed to make her poor join the leagues of low income people, keeping their standard of living, access of opportunities and consumption rates dismally low at current purchasing power parity.

This means that while China was able to increase the standard of living of her people dramatically, India only marginally managed to improve the lives of her people. The lost opportunity, takes significantly away from India’s demographic dividend which investors have been counting on to spur sales. Analysts pose the consequences to India’s slow governance, corruption and general apathy. Economically, it means that while China’s population will be older than India’s by 2010, it will also be much richer as a whole, leaving people happier and companies richer.

According to the report, from 2001 to 2011, the poverty rate in China fell from 41 percent to 12 percent and the poverty rate in India dropped from 35 percent to 20 percent.

middle-class-2 middle-class-1China was more successful than India in pushing its population closer to a middle-income lifestyle. The transition out of poverty resulted in an increase in low-income Chinese, with their share in the population rising from 57 percent in 2001 to 66 percent in 2011. But the share of middle income grew by even more, from 3 percent to 18 percent. Also, the share of China’s population that is upper-middle income or high income climbed from less than 1 percent to 5 percent.

By contrast, the transition out of poverty in India mainly resulted in an increase in the share of its low-income population, from 63 percent in 2001 to 77 percent in 2011. The middle-income share rose only from 1 percent to 3 percent, and about 1 percent of India’s population is estimated to have had an upper-middle-income or high-income standard of living in 2011.

It is clear from these estimates that India did not keep pace with China in creating a middle class in this century. The median daily per capita income in India increased relatively slowly, rising from US$2.39 in 2001 to US$2.96 in 2011, a gain of only 24 percent, compared with 126 percent in China.

The Pew Research study, which covered 111 countries, divided people in China and India into five income groups: the poor (who live on US$2 or less daily), low income (US$2.01-10), middle income (US$10.01-20), upper-middle income (US$20.01-50), and high income (more than US$50). These figures are expressed in 2011 purchasing power parities and 2011 prices. In annual terms, the middle-income range translates to an income of US$14,600 to US$29,200 for a family of four.

For a comprehensive assessment of world population by income, click here.

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