One way to gain some clarity on this issue is to examine changes in household assets over time. While income levels tend to be significantly understated in surveys, asset data tend to be more accurate. The ownership of durable goods and vehicles is often considered a signifier of middle class status globally. In the developing world, we can think of four-wheeler ownership as a proxy for upper middle class status and two-wheeler ownership as a proxy for lower middle class status.
You might also like
How growth stories of India and China stack up
Big deal is what matters for Cognizant CEO Kumar
The history of capital gains tax in India
For Avenue Supermarts, muted growth or speedy recovery?
Examining the changes in household ownership of these assets can provide a rough idea of how the middle class is evolving in the country. Ideally, Census data should be used for this exercise. But given the uncertainty over when that may arrive, I have used the next best resource: the Demographic and Health Survey (DHS). Partly funded by the USAID, DHS surveys canvass a wide range of information on socioeconomic characteristics, and follow a common template that allows comparability across countries. Using the DHS allows us to compare the rise in India’s asset-ownership with peers.
In India, the DHS was last conducted during 2019-21. The two previous rounds of the DHS, known in India as the National Family Health Survey (NFHS), were in 2015-16 and 2005-06. To select peer countries, three filters are applied. First, these countries should have a reasonably large economy (at least $100 billion at current prices). Second, these countries should have had a DHS survey in the recent past (post 2015). Third, these countries should have had a previous round of the DHS at least 8-10 years before the latest round so that one is able to make long-term comparisons.
Applying these filters leaves us with only five peer countries: Bangladesh, Indonesia, Nigeria, Pakistan and the Philippines. The growth of India’s upper middle class (as measured by car-ownership) and lower middle class (as measured by ownership of motorcycles or scooters) does not appear out of sync with these countries. The rise in India’s middle-class has been nearly as fast—or nearly as slow—as most of these countries.
The share of households owning a four-wheeler in India rose 4.8 percentage points over 15 years to 7.5% in 2020 (an annual rise of 0.3 percentage points). In Pakistan, the same share rose 3.1 percentage points over 11 years to 9.8% in 2017-18 (an annual rise of 0.3 percentage points). Among India’s peers, car-ownership has grown fastest in Indonesia in the recent past. The share of car-owning households in Indonesia rose 6.1 percentage points over 10 years to 12.6% in 2017 (an annual rise of 0.6 percentage points).
With the lone exception of Bangladesh, car-owners roughly correspond to the top decile (or top 10% of households) in India’s peer set. In the 10 years till 2017-18, the share of car-owners in Bangladesh rose only 0.3 percentage points to 0.8%. Bangladesh is also an outlier in this group when it comes to two-wheeler ownership, with less than a tenth of households having a two-wheeler.
On average, penetration of two-wheelers has been faster than that of four-wheelers across the developing world, which suggests that the ranks of the lower middle classes have swelled rapidly over the past one-and-a-half decade.
In India, the share of households owning a two-wheeler rose 33 percentage points over 15 years to 50% in 2020. For the first time in India’s history, a near-majority of households in the country possess a motorcycle or scooter. Crisis-struck Pakistan had a faster trajectory. The share of two-wheeler owners rose 36 percentage points over 11 years to 54% in 2017-18.
The penetration of two-wheelers has been the fastest in Indonesia. The share of two-wheeler owners rose 34 percentage points over 10 years to reach 79% in 2017. The penetration of two-wheelers and four-wheelers in India today is roughly at the level where Indonesia was in 2007. This is not very surprising since India’s per capita income today is roughly where Indonesia’s per capita income was in 2007 (in purchasing power parity terms).
The hype around India’s middle class appears as unjustified as the despair around it. Writing in these pages nearly ten years ago, economist Niranjan Rajadhyaksha had argued that India’s economic performance tends to disappoint habitual optimists as well as perennial pessimists. That still rings true today.
If there is any reason to be excited about India’s middle class, it lies in the sheer size of the country’s population. Even though India is a decade and a half behind Indonesia in income levels and vehicle ownership, the total number of car-owning households in India is two and a half times larger than Indonesia’s. The gap in the absolute number of two-wheeler owners is even bigger.
India’s huge population confers a hard-to-beat size advantage upon the country. Unless India’s economy enters a deep recession, it will continue to be an attractive market for global brands.
Pramit Bhattacharya is a Chennai-based journalist. His Twitter handle is pramit_b
Elsewhere in Mint
In Opinion, Madan Sabnavis says the upcoming budget may not spring any big surprise. Rajat Dhawan writes about five priorities for India Inc. Long Story delves deep into India's ongoing pension battle.
