RAMA BIJAPURKAR https://ramabijapurkar.com/ Thu, 25 Apr 2024 11:39:46 +0000 en-US hourly 1 https://wordpress.org/?v=6.4.4 https://i0.wp.com/ramabijapurkar.com/wp-content/uploads/2023/04/favicon.png?fit=16%2C16&ssl=1 RAMA BIJAPURKAR https://ramabijapurkar.com/ 32 32 230863460 How young India views the world and polls https://ramabijapurkar.com/wp-content/uploads/2024/04/how-young-india-views-the-world-and-polls.pdf https://ramabijapurkar.com/wp-content/uploads/2024/04/how-young-india-views-the-world-and-polls.pdf#respond Thu, 25 Apr 2024 11:39:42 +0000 https://ramabijapurkar.com/?p=9478 The post How young India views the world and polls appeared first on RAMA BIJAPURKAR.

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Why this fuss about income inequality? https://ramabijapurkar.com/wp-content/uploads/2024/04/Income-inequality.pdf https://ramabijapurkar.com/wp-content/uploads/2024/04/Income-inequality.pdf#respond Thu, 04 Apr 2024 17:29:46 +0000 https://ramabijapurkar.com/?p=9415 The post Why this fuss about income inequality? appeared first on RAMA BIJAPURKAR.

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How “Small” Is Driving India’s Mega Consumption Story https://www.ndtv.com/video/shows/serious-business-with-manvi-sinha-dhillon/how-small-is-driving-india-s-mega-consumption-story-765832 https://www.ndtv.com/video/shows/serious-business-with-manvi-sinha-dhillon/how-small-is-driving-india-s-mega-consumption-story-765832#respond Mon, 04 Mar 2024 14:33:54 +0000 https://ramabijapurkar.com/?p=9110 The post How “Small” Is Driving India’s Mega Consumption Story appeared first on RAMA BIJAPURKAR.

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Accepting our Income demographics https://ramabijapurkar.com/wp-content/uploads/2024/03/Accepting-our-income-demographics.pdf https://ramabijapurkar.com/wp-content/uploads/2024/03/Accepting-our-income-demographics.pdf#respond Mon, 04 Mar 2024 14:26:57 +0000 https://ramabijapurkar.com/?p=9096 The post Accepting our Income demographics appeared first on RAMA BIJAPURKAR.

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Reframing the middle class https://ramabijapurkar.com/wp-content/uploads/2024/01/Reframing-the-middle-class-Rama-Bijapurkar.pdf https://ramabijapurkar.com/wp-content/uploads/2024/01/Reframing-the-middle-class-Rama-Bijapurkar.pdf#respond Thu, 25 Jan 2024 12:16:15 +0000 https://ramabijapurkar.com/?p=9063 The post Reframing the middle class appeared first on RAMA BIJAPURKAR.

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Connecting India, connecting with India https://ramabijapurkar.com/wp-content/uploads/2024/01/Connecting-India-connecting-with-India.pdf https://ramabijapurkar.com/wp-content/uploads/2024/01/Connecting-India-connecting-with-India.pdf#respond Wed, 24 Jan 2024 10:37:23 +0000 https://ramabijapurkar.com/?p=9048 The post Connecting India, connecting with India appeared first on RAMA BIJAPURKAR.

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The ‘revdi’ debate needs re-framing https://ramabijapurkar.com/wp-content/uploads/2023/12/The-‘revdi-debate-needs-re-framing.pdf https://ramabijapurkar.com/wp-content/uploads/2023/12/The-‘revdi-debate-needs-re-framing.pdf#respond Wed, 06 Dec 2023 11:31:02 +0000 https://ramabijapurkar.com/?p=9011 The post The ‘revdi’ debate needs re-framing appeared first on RAMA BIJAPURKAR.

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A supply-side dilemma https://ramabijapurkar.com/wp-content/uploads/2023/10/A-supply-side-dilemma-BS-1.pdf https://ramabijapurkar.com/wp-content/uploads/2023/10/A-supply-side-dilemma-BS-1.pdf#respond Tue, 31 Oct 2023 10:16:51 +0000 https://ramabijapurkar.com/?p=8994 The post A supply-side dilemma appeared first on RAMA BIJAPURKAR.

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Who makes up India’s middle class: a reality check https://ramabijapurkar.com/consumer-trends/who-makes-up-indias-middle-class-a-reality-check/ https://ramabijapurkar.com/consumer-trends/who-makes-up-indias-middle-class-a-reality-check/#respond Fri, 16 Jun 2023 10:11:09 +0000 https://ramabijapurkar.com/?p=8821 Estimates of India’s middle class are as many as the number of people engaged in this quest. Perhaps this is because of a lack of clarity on what characteristics the ‘middle class’ must have to qualify for the label A FAVOURITE pastime ofIndia’s business analysts and media over the years has been to estimate the size of India’s middle class — a critical indicator of the current and future health of India’s household consumption, and hence India’s economy. Estimates of India’s middle class are as many as the number of people engaged in this quest. Perhaps this is because of lack of clarity on what characteristics the middle class must have in order to qualify for the label, despite all the literature on the subject from scholars around the world. The result is several groupings of heterogeneous households all labelled “middle class”, based on other-country benchmarks or subjective judgments with […]

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Estimates of India’s middle class are as many as the number of people engaged in this quest. Perhaps this is because of a lack of clarity on what characteristics the ‘middle class’ must have to qualify for the label

A FAVOURITE pastime ofIndia’s business analysts and media over the years has been to estimate the size of India’s middle class — a critical indicator of the current and future health of India’s household consumption, and hence India’s economy.

Estimates of India’s middle class are as many as the number of people engaged in this quest. Perhaps this is because of lack of clarity on what characteristics the middle class must have in order to qualify for the label, despite all the literature on the subject from scholars around the world. The result is several groupings of heterogeneous households all labelled “middle class”, based on other-country benchmarks or subjective judgments with very wide income ranges or yardsticks of consumption of consumer durables and amenities, or a magic number of income where consumption is supposed to ‘take off’, based on developed world cost structures (ask Jio and HUL if they believe this).

In reality, India’s genuine middle class is less than half of the 400 to 500 million number that floats around. Seeing the large economic impact such a small genuine middle class has achieved, instead of calling victory, it is time to obsess over how to significantly expand it to help India turbo charge the economy to achieve its fullest potential.

In this two-part article we examine, in part one, what characteristics a genuine middle class must have and why, and basis that, estimate the size of India’s genuine middle class. In Part 2 we examine what needs to be done to build a large genuine middle class.

The economic concept of “middle class”, on which abundant literature exists, is that a genuine middle class should provide a certain quantum of consumption that is stable and resilient because of how the income to consume is generated (the nature of occupation); and should have enough surpluses after routine expenditure to help them weather economic downturns and be able to bounce back without having to contract their consumption too much for too long. This is where many of the so-called middle class households in India do not qualify.

Such stable and resilient demand will give investors confidence to invest which, in turn, creates a virtuous cycle of creating jobs and further strengthens the middle class. Surplus income that is reasonable, stable and resilient also contributes to the savings health of the economy.

For a middle class to be a long-term, high commitment investment thesis for businesses, in addition to the stability and resilience of its consumption, there needs to be a strong foundation that enables continuous improvement in income levels, leading to more and better quality consumption as well. A genuine middle class household is one where the consumption behaviour steadily shifts upwards from price sensitivity to benefit sensitivity. This, in turn, stimulates another virtuous cycle of powerful, diverse and better quality supply responses.

 

The charts show that when these criteria are applied, India’s genuine middle class is much smaller than most popular estimates. It sits in the richest 10 to 20 per cent ofIndian households and not in the middle of the income spectrum. D10 and D9, the richest top two deciles of households, qualify on income criteria. However their occupation profile is worrisome. Only 60% of D10 and less than half of D9 have regular salaries. In D9, a large portion of these are privately employed and, given the known fact of miniscule formal employment, are most likely to be informally employed.

Income dependence on small agricultural land and informal non agricultural occupations is 42% for D9 and about a quarter ofD10, making them inherently unstable. Education demographics of Chief Wage Earners is not conducive to upward mobility into value added high skilled jobs — just 20% ofD9 and 40% ofD10 have college degrees or technical diplomas. Realistically this reduces the size of the genuine, fully formed middle class even further to 40 to 50 million households.

We conclude part 1 by saying that India is still quite some way off from having a genuine middle class that can power its economy. In an earlier paper, India’s Future lies in building a genuine middle class, we have pointed out that Middle India, the middle 60% of households in the middle of the income spectrum, should have been the genuine middle class ofIndia and has been neglected, and that India’s future lies in building a genuine middle class several times larger than it is now. Imagine the impact on the economy if that number was three times what it is now.

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A stunted middle class: role of the manufacturing and informal sectors https://ramabijapurkar.com/consumer-trends/a-stunted-middle-class-role-of-the-manufacturing-and-informal-sectors/ https://ramabijapurkar.com/consumer-trends/a-stunted-middle-class-role-of-the-manufacturing-and-informal-sectors/#respond Fri, 16 Jun 2023 09:52:51 +0000 https://ramabijapurkar.com/?p=8805 IN PART I of this article published on June 13, we showed that India’s genuine middle class is much smaller than is commonly presumed. To realise the country’s economic ambition, a large, expanding, and increasingly prosperous genuine middle class is needed — one that has income stability, resilience, and the ability to grow its income steadily through value-added work. Why is the middle class stunted? We believe that it is both the cause and consequence of the widespread informal sector that is commonly estimated to account for 90% of employment, but generating only a third of the value added in the economy. It is huge with limited efficiency because of its many constraints, and is a low-productivity trap that chokes off the formation ofa genuine middle class in India. Typically, informal workers either work as individual casual labour or in micro enterprises with very small operations, having fewer than 10 […]

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IN PART I of this article published on June 13, we showed that India’s genuine middle class is much smaller than is commonly presumed. To realise the country’s economic ambition, a large, expanding, and increasingly prosperous genuine middle class is needed — one that has income stability, resilience, and the ability to grow its income steadily through value-added work. Why is the middle class stunted?

We believe that it is both the cause and consequence of the widespread informal sector that is commonly estimated to account for 90% of employment, but generating only a third of the value added in the economy. It is huge with limited efficiency because of its many constraints, and is a low-productivity trap that chokes off the formation ofa genuine middle class in India.

Typically, informal workers either work as individual casual labour or in micro enterprises with very small operations, having fewer than 10 employees under conditions ofinstability in both employment and income. Conditions in the informal sector vitiate workers’ effort to get ahead and become middle class regardless of the legendary Indian capability for hard work and a highly entrepreneurial spirit, trapping them in situations where they are unable to increase productivity and income by working with better tools, easy learning of new skills, getting the effort-multiplier benefit of team work, and accessing the full suite of reasonably priced and regulated financial services.

The nature of temporary or contract workers in the informal economy disincentivises the employer from investing in productivity-enhancing tools and training workers to use them, since the payofftime horizon is longer term than the workers’ tenure; besides, informal employers themselves do not have the wherewithal to invest in worker productivity.

The informal sector also denies workers the opportunity of benefiting from team work. A key feature ofthe new world, as we know, is the need for workers to collaborate with others with complementary skills so that they can collectively perform and benefit from complex and high value-added tasks that none ofthem could do on their own.

hat none ofthem could do on their own. However, in the informal sector, because of the transient nature of the workforce, even if a person is part of a work crew of thousands (for example in delivery services or large construction projects), working with others as a stable team does not happen.

There is a large contingent of what we call solo service providers even among higher-skilled occupations like carpenters, tailors, auto mechanics — and even when they are a part of digital aggregator platforms, are still largely on their own. The International Labour Organization (ILO) has estimated that in 2017, a full one-third of Indian workers in the informal sector were the so-called “own account workers”. The result is persistently low productivity.

The problems of access to financing for informal workers and micro enterprises which are not a part of any formal supply chain is well known, and we will not reiterate it. The ratio of domestic credit to GDP, which measures how much credit has been extended to people and businesses benchmarked against the size of the economy, is far lower in India than in, say, China or the United States, and has also been stagnant for the entire decade ending in 2022, while it expanded in all the key economies in the world.

For all these reasons, the informal sector in India undermines the economy’s ability to create a large genuine middle class. India’s stunted middle class is also the flip side ofits stunted manufacturing sector, a significant proportion of which is fragmented and carried out mostly by small and micro enterprises, which do not possess the competitive efficiency to grow and create formal jobs. Large competitive manufacturing exists mostly in the small formal sector accounting for a minor fraction ofthe labour force.

Historically, manufacturing is the welltrodden path to economic development. The Harvard economist Dani Rodrik has characterised manufacturing as the elevator that lifts a country’s productivity rapidly from the basement to the penthouse. ‘Make in India’ is the crucial conduit through which formal jobs and a genuine middle class could rapidly expand despite a modestly educated workforce, which is India’s other reality. The post World War II manufacturing sector in the US enabled someone with a high school education or less to earn a middle-class income. Manufacturing in India so far has not been able to do this.

Given the success of India’s IT sector, could India leapfrog to IT services to fuel the expansion of the middle class, bypassing manufacturing?

NASSCOM data show that even using the broader definition ofthe sector, which includes low-end functions such as call centres, the total employment is 4.5 million, a drop in the ocean of India’s large labour force. Can the rest ofthe services sector create jobs that have all the ingredients we discussed so far to qualify as being truly formal and hence deliver productivity-driven income boosts and fuel high quality-entrepreneurship?

So far, we have not seen it happen on a large scale. Even platform aggregators are unlikely to deliver it, by the very nature of their business model, though they do address some of the limitations of “own account workers” like market access, improved pricing power, and better buyer power ofingredients needed for businesses like finance or consumables supplies.

The Indian economy is at a fork in the road: a policy push that delivers a large and prosperous middle class, or a business-asusual growth story with a massive informal sector that increases consumption but not ofthe calibre of a genuine middle class.

fthe calibre of a genuine middle class. In order to rapidly expand India’s genuine middle class with all its manifold benefits, there appears to be no shortcut to creating a large-scale manufacturing sector that can drive formal employment. This, coming on top ofthe modern welfare state that has been built in the past decade, will truly transform India’s trajectory on many fronts.

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