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India’s “Booming” Middle Class

Business, China, Company Strategy, Economics, India
By John Richardson on 20-Nov-2012

In the second of our series of posts on Asian demographics, we look at India. Yesterday, we summarised the overall challenges.

IndiaCanadaPerCapita.jpg 

 By John Richardson

INDIA is the home of a booming middle class that voraciously consumes I-Phones, I-Pads, BMWs, foreign travel etc – all the trappings of a Western lifestyle.

All that the chemicals industry has to do is just sit back and wait for this vibrant, thriving country to catch up with the West, as the wealth from India’s middle-class elite will inevitably  “trickle down” to the hundreds of millions of its very poor citizens.

Thus, the industry can continue to outsource analysis of the the big picture – India’s economic, social, political and demographic challenges – to the free reports provided by all the big Western banks. Outsourcing has worked as an economic model for India and so there is a neat parallel here.

OK, accepted, we’ve laid the sarcasm on a bit thick here.

“India is expected to become an economic powerhouse but the growth story may be become unhinged if marginalisation continues,” Rajat Nag, managing director-general at the Asian Development Bank, told the recent World Economic Forum (WEF) on India.

Inequality in earnings has doubled over the past two decades, says an Organisation for Economic Cooperation and Development report, with the top 10% of wage-earners making 12 times more than the bottom 10%.

India’s statistics on health, malnutrition and infant mortality are worse than those for some countries in sub-Saharan Africa, with the nation accounting for 20% of the world’s infant deaths, experts said during the WEF.

“The risk of so many Indian children growing up physically and mentally stunted undermines the potential for growth,” Jasmine Whitbread, chief executive of Save the Children International told the event.

India, which spends less than 2% of its gross domestic product on education, must “face up to the fact that if it wants to succeed in the world, it has got to invest more in education”, said Gordon Brown, UN Special Envoy for Global Education and Britain’s former prime minister, during the WEF.

By 2010, the average age of an Indian will be 29 – representing what could be a demographic dividend.

“Today, 540 million Indians are under 25. The labour force is expected to grow by 32% over the next 20 years, whereas it will decline by 4% in industrialised countries and by nearly 5% in China,” wrote Shashi Tharoor, India’s minister of state for human resource development, in this Project Syndicate article.

“India’s favourable demographic profile can add significantly to its economic-growth potential for the next three decades, provided that its young people are educated and trained properly,” he continued.

“India has one of the largest higher-education systems in the world, and ranks second in terms of student enrolment. But, while the country now has 621 universities and 33,500 colleges, only a few are world-class institutions. But they are still islands in a sea of mediocrity.”

Trade minister Anand Sharma told the WEF that India needs jobs for 12 to 14 million Indians who join the workforce annually – but a yawning skills gap and a lack of vocational training and of teachers is a problem.

“India is full of young people – but we don’t have the trainers,” added Shantanu Prakash, chairman of Educom Solutions India, the country’s largest private educator.

Hold on, what about the booming middle class? More than 40% of India’s 1.2 billion population survive on less than $1.25 a day, according to the World Bank.

And as the slide above shows, India has a GDP per capita the same as Canada, which only has a population of 40 million. India seems light years away from catching up with the West.

The answer for the chemicals industry – and this is a fantastic opportunity to both make money and contribute to society at the same time (i.e. to feel good about what we do) – is to help India address of all of its demographic and other challenges.