Lower middle India shining

In 2005, with the triumph of the aam aadmi of the lower middle-class, India has become a lower middle-income country.

When the tsunami hit the Tamil Nadu coast three months ago, the devastation evoked an outpouring of aid from people all over the country. Many gave cash, and some gave help in kind like old clothes.

But when volunteers offered the clothes to fisherfolk who had lost everything in the disaster, they were politely turned down. No, they did not want hand-me-downs. Volunteers quickly realised that while the mention of fisherfolk usually brings up images of people living at the cutting edge of want, the reality was different.

These were people who had pucca homes, tiled floors, TV sets, and enough money to buy new clothes. The moral of the story: India's aam aadmi is not who you think he is.

2005 marks India's transition from being a low-income country, and a global byword for poverty (Eat your cereal, dear, think of the starving children in India), to one that is a lower-middle income economy. The transition, according to the World Bank's definition in 2003, is at a per capita income level of $765 or about Rs 33,000 per head per year.

That number ties in quite nicely with the finance minister's assumption of GDP in the new financial year: a little over Rs 35,00,000 crore for a population of about 1,075 million. That means a typical Indian family of five now has a monthly income of about Rs 13,000. Think of someone you know who fits that picture, and you have India's aam aadmi.

The first thing to note is that your average Indian family is far removed from any vision of a 'below the poverty line' household. Instead, the income level defines a lower middle-class family, perhaps in a small town. And if you follow the kind of calculations that the economist Surjit Bhalla has done, of what it takes to meet the food, housing and other requirements of such a family, it becomes clear that it can meet its basic requirements comfortably and have a little money left over.

A three-room flat, for instance, can be had for less than Rs 3,000 per month in any place other than a metropolitan centre, indeed any city other than Mumbai. Utility bills (electricity, water, cable TV, cooking fuel) will take up another Rs 1,500. Public transport and school bills can be covered by a further Rs 1,500. And a balanced diet that includes everything from cereals, vegetables and lentils to milk, eggs and fruit can be had (provided you only buy what is in season) for no more than Rs 4,000 a month work out the details and you will see that it is true. That still leaves a cushion for buying new clothes, the occasional medical bill and perhaps running a scooter though not for an annual holiday or saving for old age.

This is your average Indian family. It is not what most people would have thought of as being the case, and that is the point. Most politicians and policy-makers, and perhaps many economists too, are stuck with the image of aam aadmi that was relevant 30 years ago, when Business Standard began publishing in 1975. Per capita income then was about a third of what it is now, and since half the country was officially below the poverty line then (compared to about 20 per cent today), programmes like Maharashtra's employment guarantee scheme were public policy breakthroughs.

Cut to 20 years ago, when Rajiv Gandhi had just become prime minister, and the middle-class had just about come into existence being estimated variously as being between 100 and 200 million people. Ten years ago, after Manmohan Singh had begun to work his magic, the transformation of India had begun. Today, life for the average Indian is far removed from what it was in 1975 when India's total population of cars was less than today's annual production.

The great and emerging success story of Indian business is built on this firm foundation: a domestic market that has just begun to show its potential. We now have enough consumers to buy 5 million two-wheelers a year, 20 million telephones, 10 million TV sets and only Hindustan Lever knows how many million bars of soap! And we also have the companies that produce those goods and services with international quality standards. There aren't more than half a dozen economies with markets of that size. And even fewer that are growing at 7 per cent a year.

That does not mean poverty has been abolished; 200 million and more are still below the poverty line, and their needs have to be addressed. The change over 30 years is that the poverty story is no longer the defining element for India because, for the majority, the market now delivers the essentials at an affordable price. That's what being middle class means.

Where the system has failed is in delivering public goods: law and order, an adequate public health care system, reliable electric supply, clean piped water, good public schools, comfortable public transport. What will make a difference to today's aam aadmi is not so much an employment guarantee programme as a government that can deliver these services.

This coming year, or at most a year later, the World Bank will probably re-classify India as a lower middle-income country. That means India will cease to qualify for zero-interest aid from the International Development Association; India has already said it does not want bilateral aid from all but a handful of large countries. And typifying the transformation from a poor country to a middle-income one, very soon Indian companies may be investing overseas on a comparable scale to overseas companies investing in India.

Tamil Nadu's fishermen therefore tell a much larger story. Ask Sunil Mittal of Airtel. He will tell you that some of his best customers are the fishermen of south India, as they use their mobile phones while still out on the water, to check where to land their catch and get the best price. It tells us how India has changed over 30 years.