Not 264 mn, middle-class size is 24 mn in India

India accounts for 3% of the global middle-class with 23.6 million people. It has the lowest threshold for a person to be considered middle-class with annual wealth of $13,662 (Rs 737,748 or Rs 61,480 per month). With 23.6 million people, the Indian middle-class holds almost a quarter of the country’s wealth at $780 billion (Rs 5,070,000 crore).

These are some of the findings of Credit Suisse, a global financial services firm based in Zurich, from its Global Wealth Report 2015. The report estimated that 664 million adults belonged to the global middle-class in 2015, or 14% of the adult population. India has 23.6 million adults who qualified as middle-class in 2015.

There is no clear definition of middle-class in India, but the latest definition dramatically lowers the number of Indians considered to fall in that category. A McKinsey Global Institute study in 2005 using National Council of Applied Economic Research (NCAER) data said 50 million people were middle-class, using the definition of real annual household disposable income between Rs 2,00,000 and Rs 1 million.

At the other end of the spectrum, a study by the World Bank in 2005 estimated the middle-class at 264 million, using the median poverty line in 70 countries at the lower extreme ($2 per day) and the United States poverty line ($13 per day) as an upper extreme.

Another method, used by television channel CNN-IBN in its middle-class survey in 2007, utilised consumption-based household criteria: Car or scooter, colour television, or telephone. It estimated that the middle-class was approximately 20% of the population or slightly over 200 million people.

Middle-class measured by wealth not income

The Credit Suisse report has estimated the middle-class on the basis of their wealth rather than their income. “An income-based definition of the middle-class misses elements of freedom and security. It suggests, for example, that a spell of unemployment can cause middle-class status to evaporate. A wealth-based definition, on the other hand, conforms better to the widespread view that middle-class membership is resilient to temporary setbacks,” the report said. In India, the estimated value of wealth to be considered middle-class must be more than or equal to $13,662 (Rs 7,37,748).

The growth of wealth has been the fastest in India (second only to China) over 15 years (2000-2015), even correcting for population growth. Yet, more than 90% of the adult population falls in the bottom of the wealth pyramid (less than $10,000), indicating the uneven distribution of wealth in India. At the top of the global ladder, 2% of high net-worth individuals (HNWIs) reside in India, Africa or Latin America.

With 108 million people, China has the highest middle-class population among BRICS nations and globally, followed by India’s 23.6 million people and Brazil’s 11.2 million. China also tops the share of the global middle-class population with 16.4%, followed by India with 3%. The number of middle-class adults in China increased 38 million between 2000 and 2015, and their wealth rose by $5.6 trillion, overtaking the US, which, thus far, had the highest number of middle-class adults.

Over 15 years, 6.7 million adults join middle-class

India added 6.7 million adults to the middle-class over these 15 years, and middle-class wealth rose by $1.2 trillion. “One of the reasons for this different experience is partly due to faster overall wealth growth in China, and partly because the populous mid-portion of the Chinese wealth distribution is moving into the global middle-class, whereas it is still far from doing so in India,” the report said.

As many as 11 other countries have more than 10 million middle-class citizens: Japan, 62 million; France, Italy, Germany, India, Spain and United Kingdom, between 20 million and 30 million each; and Australia, Brazil, Canada and Korea, with 10 million to 17 million each.

The middle-class in India has a 22.6% share ($780 billion or Rs 5,070,000 crore) of the country’s wealth, while sections above the middle-class (higher middle-class) share about 64% of the wealth.

The Chinese middle-class has an estimated wealth of about $16,845 billion, which is a 32% share of that country’s wealth and 2.9% of the world’s wealth. The Brazilian middle-class ranks third among the BRICS nations, with a total wealth of $754 billion; 31% of the country’s wealth and 0.3% of global wealth.

Share of middle-class wealth falls globally – except in China Wealth per middle-class adult in India has more than doubled from $2,040 (Rs 97,104) in 2000 to $5,100 (Rs 205,020) in 2007. After falling by about 26% during the financial crisis of 2008, it bounced to $5,300 (Rs 241,150) in 2010. It continued to fall due to adverse exchange rates and was estimated at $4,352 (Rs 282,880) in 2015.

Wealth is dominated by real assets, which account for about 86% of estimated household assets. The share of middle-class wealth has fallen globally since 2008, except in China, over the period 2000 to 2015. (Courtesy: Indiaspend.org; The writer is an analyst with Indiaspend)

By Prachi Salve