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Middle Class in India
Sonalde Desai
February 2005
Forthcoming in: Kaushik Basu (Ed.) Oxford Companion to Indian Economy,
Oxford: Oxford University Press.
In recent years, the discourse about the Indian middle class—by some
accounts the largest in the world—seems to have caught the public’s
imagination. However, two different stories are simultaneously being told.
According to one story, the high rate of economic growth over the past decade
has resulted in a large number of people moving from poverty into the middle
class. This broad-based economic boom has affected all sections of society and
resulted in a growing market. It is expected that this growing market will increase
opportunities for domestic and foreign companies, thereby augmenting the
virtuous cycle of growth (Das, 2000). The second story, however, focuses on the
elitist nature of this growth and suggests that the Indian middle class has become
increasingly insular, with the perks of middle-class existence reserved for the
privileged sections of society (Varma, 1998).
The exact size of this middle class remains difficult to estimate. There are
few national surveys that collect data on income. The most-cited source, a
household survey conducted by the National Council of Applied Economic
Research (NCAER, 2000), contained only one question on total household
income and is considered an approximation at best. Moreover, the proprietary
nature of this data does not allow for independent evaluation. National Sample
Surveys (NSS) offer other sources of data for examining changes in consumption
expenditure over time. While consumption data tend to underestimate certain
types of consumption—such as of alcohol or tobacco—they still provide a good
proxy for changes in consumption over time. Results from the NCAER surveys
as well as NSS surveys are summarized in Table 1. These results suggest a
steady increase in the households at middle and upper income levels in the past
twenty years, particularly in urban areas.
[Table 1 about here]
The sheer size of the Indian middle income group is important for
estimating the size of the Indian market, but for social scientists, the structure
and composition of the middle class is even more important. While the definition
of ‘middle class’ varies widely between Marxists and non-Marxists, much of the
research on the ‘middling sorts’ has tended to focus on the nexus between
education, occupation, and income. Changes in these three categories over the
past twenty years in India paint a very interesting sociological picture.
While all segments of Indian society have benefited from a high rate of
economic growth in the past two decades, the gains have been differentially
captured by different segments of society. Table 2 summarizes the proportion
among various occupational groups of households with an annual expenditure of
Rs. 60,000 or more, using data from the NSS. These data suggest that while all
segments of society have gained over the past twenty years, the growth is
greatest among professionals and government officials/managers. The
proportion of households with a monthly expenditure level of Rs. 5,000 and
above has risen sharply for upper-level professionals—consisting of doctors,
engineers, and lawyers, among others. Fewer than one-third of such households
fell into an expenditure category of Rs. 5,000 and above in 1983, whereas nearly
half of the professional households had attained the expenditure level of Rs.
5,000 and above by 2000. Managers and government officials seem to have
been particular beneficiaries of the past two decades, with nearly 65 per cent of
households attaining expenditure levels of Rs. 5,000 and above. In contrast,
manual workers and artisans show hardly any gains, and farmers and selfemployed entrepreneurs show only limited gains.
[Table 2 about here]
While there is no doubt that a higher rate of growth in the service sector
and the entry of multinationals into India have played an important role in the
income growths of professionals and managers, two other structural changes are
far more important. Personal income tax rates in India steadily declined between
1985 and 2000. In the early 1970s, at its height, the maximum marginal tax rate
was 85 per cent (which turned into a top tax rate of 97.5 per cent with the
addition of surcharges). In 1985–86, the effective top tax rate dropped to 50 per
cent, and it was further reduced to 30 per cent in 1997. High rates of taxation led
to substantial tax evasion, but only farmers and self-employed people were able
to evade paying full income taxes; employees and professionals had fewer such
opportunities. Thus, the decline in personal income tax rates raised their
disposable income, but the effect was much smaller for farmers and
entrepreneurs who paid fewer taxes to begin with.
The second factor that played an important role in the growth of salary
incomes was the growth in government salaries. In spite of the stagnation in
government employment, the public sector continues to employ nearly two-thirds
of the workers in the formal sector. Salaries of government workers were raised
sharply in 1997, following the implementation of the Fifth Pay Commission
Report. This increased the incomes of a variety of government servants,
including government officials, clerical workers, and lower-level peons.
Thus, as we focus on income growth in India, it is important to note that
much of this growth has been concentrated in the hands of educated workers in
the formal sector, with some trickle-down effect for service-sector workers such
as domestic servants, transportation workers, and merchants. In contrast, the
two groups that were highly protected under the regime of central planning and
license Raj, middle- and large-scale farmers and entrepreneurs in small-scale
industries (Raj, 1973), have not gained proportionately.
These changes in the incomes of educated professionals need to be
evaluated in the context of changes in educational and occupational distribution
in India. The education level in India has risen steadily at all levels. The
proportion of 30- to 50-year-old men with higher secondary and college
education rose from 5 per cent in 1983 to 13 per cent in 2000; the proportion of
women in this category increased from 1 per cent to 5 per cent (Desai and Das,
2004). At the same time, occupational distribution has not changed substantially.
Among 30- to 50-year-old men, about 10.5 per cent held professional, clerical, or
other white-collar jobs, and this percentage had dropped to 9.14 per cent by
2000; among women, the proportion had risen slightly, from 1.5 per cent to 2 per
cent.
These changes have led to increasing competition for white-collar jobs.
While education remains a necessary condition for obtaining a professional or
white-collar job, it is no longer a sufficient condition. Among 30- to 50-year-old
men with higher secondary and college education, the likelihood of obtaining a
white-collar job was about 0.73 in 1983, but it had dropped to 0.43 by 2000; the
comparable likelihood for women dropped from 0.38 in 1983 to 0.24 in 2000.
The data presented above paint an interesting picture of the social