Thursday, October 31, 2013

Reconciling Indian middle class statistics with the polarization debate

India has a population of about 1250 million people. According to the BBC (May 23, 2013), it is expected that the middle class will grow to 200 million people in 2020. So, perhaps it is only 125 million now? About 10%. Even if it is 199 million now, it's only 16% of the population. So, let's say 10% to 16%. Evidently, in a poor country, people would be happy to be middle class.

The problem created by a small middle class is that it doesn't have any political power. As a result, policies are set either for the poor or the rich. But, the recent debate in India, based on studies by famous economists, shows that economic development has bypassed any social gains for the poor. So, clearly, policies are set for the rich.

But wait a minute. If the poor have not seen any gains, then how is it that the middle classes will grow as the BBC claims? Evidently, population increase could be one answer. But do the middle classes really produce so many babies? Aren't they the educated ones who have one child or two?

Perhaps some rich people may face business failure and slide back into middle class, allowing it to grow. This could be rich farmers who sell their land and don't realize that if they don't invest in anything except BMWs, they will soon spend all of it and now be without land and without income. (Of course, the BMW could become a taxi).

Evidently, most of the swelling of the ranks of the middle classes has to come from the poor. So, there has been economic trickling down to the poor. However, the poor have large family sizes. So, even if a few million move up to middle class, the lower classes are the one that are swelling in number. And for these, perhaps, there have been few social gains as suggested by the different studies.

Sunday, October 27, 2013

Microfinance and the middle class consumer

How can you link microfinance to middle classes? After all isn't microfinance so micro that its only for the poor?
Well, microfinance has often been targetted to the near-poor, either because it is the only sustainable strategy or because profits from these people will be used to cross-subsidize lending to the really poor. Not that the near poor are middle class.
But extending this logic means that that microfinance may target even the middle classes (or at least the lower middle class) in a bid to cross-subsidize the poor.
Again, some forms of microfinance may require complementary capital such as education of internet access or smart phones, which are available only to middle classes.

A case in point is micro-payments. These are very small payments, often made on the mobile telephone. The mobile payment market is estimated in trillions of dollars.

One operator who is into micro-payments (as well as much larger ones) is paypal. Check out this report on paypal on

If paypal is interested in the middle class, surely other businesses are too. And this means that the middle classes are of interest to business, and even to big business, as consumers.

So, don't sell yourself short: you are not just taxpayers and redistributors. You also contribute because you consume. The profits made from your consumption, earned by big business, should also be used for redistribution.

Saturday, October 26, 2013

Not even a trickle flowing down for the middle classes

Whoever thought I would not only be reading Bloomberg Business Week, but also citing it? One of my intellectual colleagues reads everything right of whatever mark he sets for himself. After that, he passes it on to me, hoping he can save my mind by some miracle.

Guess what, even this Business Week has realized that the trickle down is no longer trickling. At least not this week, not this month, not this year, not this decade, not this ......

Read it for yourself before you continue further.
So, the growth mantra works for the rich. It may even work for throwing a few lollipops to the poor. But for the middle classes there is nothing.

Have you ever wondered who you are voting for? Why?

Do you have your own party? Are you being represented? Is there a party for the middle classes?

If not, one suddenly understand the choice made by some to opt out. But opting out means opting out of the votes as well as the economy. Suddenly, the parallel economy starts making sense. It is no longer about legality or illegality, it's about legitimacy or illegitimacy.

 Legitmacy requires representation. 

Its not about right or left, its about in or out.