IPA Newspack
  • Home
  • now
  • politics
  • business
  • markets

IPA /

IPA Special

IPA Special

Faulty Policies By Modi Govt Have Led To Shrinking Of Indian Middle Class

By Dr. Nilanjan Banik

As per the State of World Population Report published by the United Nations Population Fund, India will become the most populous country in the world in the summer of 2023. At this point, India also has a relatively ‘younger’ working-age population compared to China. Depending upon how one read the data, this can be a boon or bane, as labour is an important component of growth in national income (read, GDP). If the labourers are productive, then their income and the economy grow. Much of the GDP growth that occurred among the emerging Asian economies during the second half of the last century was through increased labour force participation. These countries, for example, China, South Korea, Singapore, Taiwan, and Vietnam, were able to absorb labour from the low-productive agricultural sector to the high-productive manufacturing sectors. Much of the supply of white goods like mobile phones, air conditioners, refrigerators, computers, etc. are manufactured in these countries, thereby making their economy transition from low to middle and high-income economies.

It is not surprising to see why there is a flourishing middle class in these economies as the manufacturing sectors were able to absorb labourers from the agriculture. According to pewresearch.org the share of Chinese who are in middle-income group jumped from 3% to 18%, however, the share of Indians middle-income group remain unchanged during most part of this century. Although, thanks to reforms and the consequential high growth rates in GDP, India was able to reduce poverty – from 40% in 2004 to 10% in 2019 – however, the drop in poverty merely resulted in an increase in the number of low-income population.

Data from the recently published India Consumer Economy 360 survey points towards a fall in income growth for the poor and middle-income households, whereas that of the high-income households surged. Between 2016 and 2021, people in the bottom 20 quintiles has seen their income growth decline by 20% whereas those in the top 20 quintiles has seen their income grow by 20%. The growth in income for this top 20 quintiles is because of highly skilled new-age workforce (often foreign returned) like doctors, legal experts, engineers and MBAs working for the global consultancy firms and global capability centres of multinational based in India.

Ergo, although in India the poor (less-skilled workers) are becoming richer, the society is also becoming more unequal, that is, the rich (highly-skilled workers and big entrepreneurs) are becoming richer much faster. New World Wealth, a Johannesburg-based company, published a report where it claimed that India is the second-most unequal country in the world, with millionaires controlling 54% of the wealth. In India number of ultra-high-net-worth-individuals (with net assets more than $30 million or more) has grown by 11% year-on-year in 2021, the highest percentage growth in the Asia-Pacific.

A reason for an unequal income distribution is that most of our labourers are stuck in low-productive sectors. According to the Periodic Labour Force Survey (PLFS) 2021-22, agriculture still remains the largest source of employment, employing 45.5% of the workforce. Construction is at a distant second employing 12.4%, closely followed by trade, hotel & restaurant, employing 12.1% of the workforce. Now all these sectors require low/semi-skilled labourers, with low productivity.

India’s labour productivity – economic output per hour of work – is just 12% of the US levels. In purchasing parity terms, GDP per hour worked is $70.68 for the US, in comparison to India’s $8.47, and this cannot be explained by differences in the working population alone. Types of employment, and access to finance and technology matter.

India leapfrogged into services without being able to create enough jobs in the manufacturing sector. Even the success story in the manufacturing sectors, like Reliance, Godrej, TATA Group, etc. employs a capital-intensive mode of production. For a long, everyone thought labour market reform such as giving more power to the companies to hire and fire workers, will bring in the required change. That did not happen in spite of the Central labour law reforms in 2020.

Instead, over the last five years, there has been an increase in self-employment in low-productive agriculture and urban informal sector. There are not enough jobs getting created and according to PLFS 2021-22, on the basis of current weekly status unemployment level remained stagnant at 8.8%, without declining much since 2017. On the other hand, a concomitant rise in income inequality is leading to the creation of low-paid and low-productive jobs such as housekeeping, security services, and other gig type jobs such as Zomato delivery boys.

A low productive workforce means a lower income, in particular when the informal labour markets are monopsonistics (higher number of labourers looking for jobs as opposed to employers/aggregators). There has been no significant growth of real wages at the all-India level in the last eight years. On the contrary, the cost of healthcare and education is rising, most of which have to be borne privately. As per the latest household social consumption data (NSS 75th Round), only 4% of the rural population and 19% of the urban population reported that they had health expenditure coverage.

According to the Economic Survey 2022-23, almost half of all medical expense is still borne by the patient themselves. The Government’s insurance coverage program Ayushman Bharat, does not cover primary healthcare such as prenatal care, and other common diseases such as influenza, diarrhoea, etc., which form a major part of household expense on health. Even for the tertiary sector, and if one is lucky to get covered under government insurance coverage, new medicines for terminal illness diseases and surgical procedures, remains outside the budget of a majority of the Indian household. For example, each round of chemotherapy and radiation costs more than one lakh, whereas a vital organ transplant (liver and kidney) can cost anywhere between 20 and 30 lakhs.

The same applies for availing quality education. At a time when public spending (Central and State governments taken together) is only 4.5% of GDP, it is not surprising that for a majority of the population, education is delivered by the private sector. Because of the failures of government schools to provide a decent education, studies show even the poor income household prefers sending their kids to private schools. However, sending kids to private schools cost money. As per a survey conducted by ET Online research, educating a child between the age of three to 17 years costs around 30 Lakhs; a 4-year BTech or a 3-year BSc, costs around Rs 4 – 20 lakhs; and a five and half years MBBS degree can cost up to 1 crore. No wonder the middle and lower-income households are getting squeezed in India.

For any growing economy like India, it is important to have a flourishing middle and lower-income household. Private consumption in India is almost 60% of the gross domestic product (GDP), and private consumption growth has accounted for 70% of Indian growth since 2000. And most of the private consumption is driven by middle and lower-income households. Low income households actually consumer goods manufactured by small and marginal enterprises which are labour intensive and generate employment. That’s an added advantage. This is contrary to the consumption pattern of the rich income household most part of which is conspicuous, encouraging imports.

For instance, during last year, sell of two wheelers (bike and scooters) have fallen, whereas, imports of premium goods such as scotch/whiskey, fancy cars, different kind of cheese, tangerines, raspberries, blueberries, dragon fruits, etc., went up by a considerable 26%. For keeping our economy resilient it is important that we ensure growth of income for the poor and the middle-income household. (IPA Service)

The author is Professor, School of Management, Mahindra University.

IPA Special

Installation Of Sengol At New Parliament Building Is A Part Of RSS Plan On Hindu Rashtra

June 1, 2023
IPA Special

Coming Caste Census Has To Focus On Many New Dynamics Of Indian Society

June 1, 2023
IPA Special

High Growth Rate Of GDP In 2022-23 Hides Many Concerns Over Its Nature

June 1, 2023
IPA Special

BJP Leadership At State, Centre Have Been Stoking Manipur Fire

June 1, 2023
IPA Special

Centre and The Ruling Party Have Lost All Propriety By Defending The Accused BJP MP

June 1, 2023
IPA Special

Brazil President Lula Pushes For Integration At South American Summit

June 1, 2023
IPA Special

The Bloody History Behind The British Possession Of The Koh-i-Noor

June 1, 2023
Politics

DMK to coordinate opposition unity efforts: Stalin

June 1, 2023
Politics

Modi blasts Cong for misleading poor, ‘guarantee habit’

June 1, 2023
Happening Now

Gehlot adds free power to pre-poll promises

June 1, 2023
Politics

Rahul holds session with Silicon Valley AI experts, entrepreneurs

June 1, 2023
Happening Now

Farmers call Khap Mahapanchayat for wrestlers

June 1, 2023
IPA Special

US Govt Putting Pressure On India To Join NATO+ As A Part Of Asia-Pacific Strategy

May 31, 2023
IPA Special

Political Outcome From Communal Cauldron May Not Favour BJP

May 31, 2023
IPA Special

No Real Truce Is Ready At Ending Gehlot-Pilot Infighting In Rajasthan Congress

May 31, 2023
IPA Special

Slowdown In Containerized Exports Poses Setback To Pro-Export Agenda

May 31, 2023
IPA Special

Sons Of First Joint Climbers Of Mount Everest Are Carrying The Legacy Of Their Fathers

May 31, 2023
IPA Special

Shiites And Not Jews Emerge As Touchstone Of Saudi Moderation

May 31, 2023
IPA Special

Kerala Govt To Move SC Against Centre’s Cut In Net Borrowings Ceiling

May 31, 2023
IPA Special

G7 Conclave Fails To Meet Commitment For Nuclear Weapons Abolition

May 31, 2023

An appeal

The legacy of IPA, founded by Nikhil Chakravartty, the doyen of journalism in India, to keep the flag of independent media flying high, is facing the threat of extinction due to the effect of the Covid pandemic. Only an emergency funding can avert such an eventuality. We appeal to all those who believe in the freedom of expression to contribute to this noble cause.
Click here to learn more

Share

Reply

  • 0
More on IPA

Installation Of Sengol At New Parliament Building Is A Part Of RSS Plan On Hindu Rashtra

June 1, 2023 4:05 pm | IPA Staff

By Prakash Karat Twenty opposition parties had boycotted the inauguration of the new parliament building on May 28 on the grounds that the Modi government...

IPA Special

Coming Caste Census Has To Focus On Many New Dynamics Of Indian Society

June 1, 2023 4:03 pm | IPA Staff

By Krishna Jha We are a multi-religious country. For each community, there is a spiritual path to arrive at the basics, the most sacred that...

IPA Special

High Growth Rate Of GDP In 2022-23 Hides Many Concerns Over Its Nature

June 1, 2023 3:52 pm | IPA Staff

By Dr. Gyan Pathak India’s growth rate for 2022-23 exceeded expectations. It has now been estimated upward to 7.2 per cent from 7 per cent...

IPA Special

BJP Leadership At State, Centre Have Been Stoking Manipur Fire

June 1, 2023 3:46 pm | IPA Staff

By Arun Srivastava It needs fairly high amount of moral strength and conviction to look straight into the eyes of the rulers of the country...

IPA Special

Installation Of Sengol At New Parliament Building Is A Part Of RSS Plan On Hindu Rashtra

in IPA Special
Jun 1, 2023   ·  

Coming Caste Census Has To Focus On Many New Dynamics Of Indian Society

in IPA Special
Jun 1, 2023   ·  

High Growth Rate Of GDP In 2022-23 Hides Many Concerns Over Its Nature

in IPA Special
Jun 1, 2023   ·  

Leave a Reply Cancel reply

You must be logged in to post a comment.

Follow us on
Up Next: Regional Powers Discuss Myanmar Crisis In A Secret Meeting Hosted By India
©2020 -2021 India Press Agency, All Rights Reserved.
Newspack by India Press Agency | Statement of Ownership | Contact Us
logo
  • Home
  • now
  • politics
  • business
  • markets