Column : Growth thats even more inclusive

Written by Michael Walton | Michael Walton | Updated: Jul 25 2009, 03:58am hrs
Will Indias growing middle class drive its social and economic transformation The investment community, both global and Indian, has been licking its lips at the prospects of Indias middle class market. Middle class values are thought to be sources of good social, political and economic behaviour. But there is nothing guaranteed here. Many countries with large middle classes faltered in the development process. Todays industrialised countries grew slowly by the standards of Indias current aspirations. A lot will depend on questions of development design.

Why does the middle class matter for development Consumption patterns shift increasingly out of basic necessities into the whole array of goods and services that power growth in output and jobs, including housing, transportation, consumer durables, health and education services. Middle classes have the resources, and develop the values, that can more effectively press for better government and can underpin stronger aspirations for the future.

However, there is nothing automatic here. To start with, in global terms, Indias middle classes are small. If we take a cutoff of (purchasing power adjusted) $2 a dayaround Latin American poverty linethen only the top 30 percent of urban Indians, and the top 20 percent of rural are middle class, according to the last National Sample Survey. And if we take a cutoff of $10 per day (around the US poverty line), then we are looking at way under 5 percent of the population that could be described as global middle class. Yet, India is on the cusp of changes in which interactions with middle groups and the behaviour of global middle class will be highly influential.

So, what makes a difference One of the biggest questions is whether the middle classes opt out. Middle class households who can afford to choose, will abandon inefficient or corruption-ridden government services. This is happening fast in education and health, and is well on the way in urban enclaves, at least for the global middle class. If casual violence rises, therell be a rise in private security.

India looks vulnerable to an unhappy resolution. Indias middle classes are being formed with a degree of awareness of global standards of consumption and services that is unprecedented in history. And politically, it is harder to form alliances between middle and poorer groups for better government, owing to the socio-cultural fissures of caste, religion and language. Better off Indians already vote less than the poor. India could easily head for a bad equilibrium of low quality government services for the poor, while the middle classes go for alternatives.

So, what does this imply It gives a whole different meaning to the idea of inclusion. It is, of course, central to include the poor and near-poorsay, the bottom 40 percentin the development process. But for the dynamics of both growth and government behaviour, it is equally important to keep both middle groups and the global middle class in the system, as beneficiaries of public services and sources of pressure on governmental accountability.

Achieving such a broadened idea of inclusion is fundamentally a question of genuine, universal citizenship. But it is also highly relevant for practical questions of policy design. Policies need to be shaped in ways that benefit the poor, middle groups and the global middle class. Of greatest importance is for government to effectively deliver on genuine public goods.

But I think the area in which there is both greatest danger and greatest potential is urban development. This is where most of Indias middle groups and the vast majority of the global middle class will be living in years to come. It is a domain now thick with dysfunctional resolutions of service provision, costly and corrupt fights over land, and emerging opt-out. Yet there is potentially a common interest amongst all groups in having livable and well-functioning cities.

Unfortunately, urban policy is an area in which current policy is woefully inadequate by global standards. Putting more resources into the JNNURM is a good thing, but the real problem lies in the failure to take on the central issue of urban governance, with genuine decentralisation to cities, linked to greater citizen participation. There will be big resistance, not least from state governments which would lose control and sources of patronage. But in the absence of genuine devolution and democratisation of cities and towns, it is hard to see the creation of social and political coalitions across the classes, or effective resolution of problems of urban service delivery. Indias development dynamic could be undercut by failures of inclusion of both the poor and middle classes.

The author is at the Harvard Kennedy School, the Institute of Social &Economic Change and the Centre for Policy Research