Middle class key to South Asia growth

Written by Raj Kumar Ray | Updated: Sep 10 2013, 01:41am hrs
As the global economy is struggling with the slowdown that has increased unemployment to 200 million, the priority of G20 is to adopt policies that can boost jobs. What's important now is creation of quality jobs as well as improving skill-sets of the workers so that more people are lifted from poverty (earning below $1.25 a day) to the middle class (earning $4 a day or more). Unless that happens, more jobs may not translate into faster growth and poverty reduction.

An ILO working paper shows how the middle class population has grown in some of the regions in the Asia-Pacific, which explains for the sustained high growth rates over the past two decades. In 1991, around 55% of the regions workers were living in extreme poverty ($1.25 a day), 25% living in moderate poverty ($1.25-$2/day) and nearly 14% in the near poor category ($2-$4/day)80% of the regions workforce was poor and only 5% of the workforce was living with their families on more than $4 per person per day and constituted the middle class and above category. In 2012, the share of middle class was 38% of the workforce and the poverty was slashed by 46 percentage points over two decades. However, an analysis of sub-regional data indicates that this rapid development in the Asia-Pacific as a whole has been driven largely by the extraordinary growth in middle class employment in the East Asia sub-region that includes China and Korea, growing from less than 5% in 1991 to more than 60% of total employment in 2012. Even the Southeast Asia and the Pacific region (ASEAN, Australia and New Zealand) experienced rapid growth in middle class employmentan increase from 12% to 33% of the total workforce over the same period. In contrast, the middle class in South Asia (India and other SAARC nations) still comprises only a very small segment of the sub-regions workforceless than 9% in 2012, though this is a notable increase from 2% in 1991. As of 2012, over 61% of South Asias workforce remains poor and a further 30% are near poor. The ILO study projects rapid growth in Asias middle class, which could grow to one-half of the total workforce in the region by 2017. This is based on a projected acceleration in middle class employment growth in East Asia (which is expected to see 180 million additional middle class workers between 2012 and 2017).

Overall regional projection for Asia-Pacific is, therefore, heavily dependent upon the growth and employment performance in China. Unfortunately, a vast majority of 87% workers in South Asia are projected to remain either poor or near poor in 2017. Without a faster growth in the middle class, the region, especially India, would falter in sustaining high economic growth. Which is why Indian policymakers need to take a hard look at rigid labour laws and skill development.