The Rich Middle Class

Last week, I was sitting in a restaurant in Madras with a friend from WIMWI chatting about how expensive food in the city was. In our conversation, he described both of us as being "middle class". Our discussion did not become more involved and we moved on to other topics, but the phrase has lingered in my mind.

Virtually everyone whom I have known and conversed with has described himself or herself and their families as being middle class. It is a description that rankles me sometimes. A recent report in The Economist described a commonly accepted range of middle class income as being USD 2-13 a day. Assuming a PPP exchange rate of 10 rupees to a dollar, the upper end of the range translates into less than INR 50 000 a year. I have no doubt that the "virtually everyone" referred to above each belonged to families making more than that sum every year (even assuming only one earning member in the family).

A few years ago Mckinsey came out with a report ("The 'Bird of Gold': The Rise of India's Consumer Market") which described the middle class as being composed of households earning between 2 and 10 lakh each year. By that definition, many of my acquaintances might qualify, though not most. The definitions of the middle class sound reasonable, especially in cities like Bombay where rent alone can cost 2-3 lakh a year.

What's my point? Families earning 2-10 lakh may indeed be middle class by the absolute definition of the word, but relative to their fellow countrymen they are vastly better off. The number of people included in this middle class in 2005, according to Mckinsey, was 5 cr. That's less than 5% of India's population. Obviously the number of above the middle class income range is less than 1% of the population. Which means that 94% of India's population is neither rich nor middle class. They are therefore poor.

I think that the small creamy layer at the top who yet persist in describing themselves as middle class have contributed to the adoption, persistence and justification of economic policies that are harming the poor. A policy that is described as pro-middle class in the newspapers is likely to be considered a good policy. Yet if we think about it, such a policy may bring no benefits to the 80-95% of the population (or even harm them). Take the LPG subsidy, one of the most egregious examples. Less than 20% of India's population uses LPG, most presumably in the top quintile income bracket (see pdf link). Yet the government chooses to subsidise the rates of LPG, upto the tune of over 50% at the height of the oil bubble last year. If we were a rich country, we could call this a subsidy to the deserving middle class (though even that would not be a very persuasive case). But India is desperately poor. 26% of Indians live below the official poverty line of around INR 7000 a year. Shouldn't every single minute of our economic policy making thought process be devoted to ameliorating their condition?

Hence my annoyance at the use of middle class by very well-off friends to describe themselves (My mom does the same, which vexes me even further). 7000 rupees a year? 25 crore Indians somehow eek out a living on less than that. If only some of us who earn more than 100 times that amount each year referred to ourselves as the rich rather than middle class, perhaps we would be shamed enough into forgoing the cheap diesel and LPG we use.