A new study by the Asian Development Bank (ADB), ?The Rise of Asia?s Middle Class?, gives cause for celebration, concern and confusion, in equal measure. The study highlights that consumers from 22 developing countries in Asia have started exerting their heft on global consumption and the same will continue to grow?from a third of all OECD consumption in 2005 (by purchasing power parity) to 43% by 2030. Japan and South Korea are excluded from the ?Developing Asia? grouping as they are part of the developed OECD.
These figures corroborate what global businesses and policymakers have known for some time now?the shift of wealth back to the East. The rebalancing of the global economy is welcome, not for its own sake, but the fact that such a shift in relative consumption power has an important subtext.
Developing Asia?s middle class, defined as those living on $2-20 per person per day PPP, has more than trebled between 1990 and 2008, lifting tens of millions out of poverty from Azerbaijan and India to Vietnam. A big consuming middle class in Asia will also result in intra-country and region rebalancing, from export-led to domestic-led consumption growth, which is far less susceptible to global economic shocks. A big, growing and dependable domestic market for goods and services makes for a more stable polity and economy. And a politically and economically stable Asia, home to over half of humanity, is good news for our terror and tyrant besieged world.
But this 1.9 billion strong middle class in developing Asia is far from homogeneous. And it is here that concerns start building up on the sustainability of this middle class growth. Take the 274 million-odd Indian middle class, for instance. Over 223 million, or around 80%, fall in the $2-4 range. Dissect this $2-4 range of 223 million middle class Indians into occupation classes and the picture becomes more grim. Around 42% here are workers and labourers in the traditional manufacturing sector. This middle class majority can easily slip into poverty due to economic shocks?both personal, like illness, death of chief wage earner, loss of livelihood or larger systemic ones like the global economic slowdown of 2007-09.
Moreover, a majority of middle class Indians are not even educated enough to participate in a fast modernising economy that puts a premium on skills. Around half, 48%, of India?s 274-million strong middle class has not even completed a full school (10+2) education and under a fifth (18%) have passed a university-level course. Such a huge mass of middle class people without the requisite education to reskill themselves for the country?s fast-changing factory shopfloors, modern equipment-led construction sites or services-led economy is a ticking demographic time-bomb.
The situation is equally alarming in most other developing Asian countries. Over half, 53%, of all chief wage earners in the 817-million strong Chinese middle class work for private businesses and every two in five here are manual workers. As Chinese businesses start catering more and more to domestic and regional consumers, the need to keep prices low will put an undue pressure on labour productivity and costs, putting a big part of this Chinese ?manual worker? middle class at the risk of slipping back into poverty.
There is also this point of view, as espoused in the ADB-NCAER seminar following the release of the report, on the efficacy of using the West-led expenditure model to define middle class for thrifty Asians. The overlay of India?s income and expenditure data for 2004-05 bears out this limitation. Household income and expenditure more or less run parallel amongst the lowest percentile. But take the top 25% of the Indian population, defined by ADB in its report as the middle class. Here, the household level income is typically 50% to 100% more than expenditure and a truer measure of the household?s economic condition.
Not taking away any joy from the report?s prognosis of a resurgent Asia creating a billion new middle class consumers in the next two decades, the takeaways for businesses and policymakers are more nuanced. It is not just consumption innovations?from low-cost shampoo sachets, the world?s cheapest car Nano and low-cost generic drugs to minute-factory mobile services model?that will be needed to sustain the growth of this humongous, 1.9 billion people strong class, but also income-generating innovations that leverage their hidden productivity for creating sustained livelihoods.
?Shailesh.dobhal@expressindia.com