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- India's middle class figures in Fortune's Top Ten list of those who matter
This story is from July 14, 2006
India's middle class figures in Fortune's Top Ten list of those who matter
Don't take our middle class seriously
The idea of creating a critical mass of people to drive the economy, in fact, preceded economic reforms in 1991 and started during the Rajiv Gandhi years.
Handsome payouts to government and public sector employees created the conditions for the first consumer boom, to facilitate which output restrictions on a host of industries were lifted in the 90s.
The boom ran out of steam after 1997, and a lot of industries were plagued by overcapacity. With rural output and incomes hardly growing at all, the manufacturing sector was faced with a demand crisis and slowdown.
An economy cannot grow at 8 per cent for all time to come on a restricted base in relation to the size of its population, given the trade and financial uncertainties in a globally integrated economy.
The UPA govern-ment, realising this, seeks to promote rural incomes and augment purchasing power. True, India has serious economic potential, but a lot of that remains to be realised.
Agriculture accounts for 25 per cent of our gross domestic product, but provides a livelihood to about 57 per cent of the population. Productivity in most crops has stagnated or fallen due to fragmentation of holdings and a host of institutional factors that have made farming an unattractive enterprise.
Agriculture needs to improve its productivity to sustain more people. Institutional reforms in agriculture should create conditions for higher wages, which in turn would push up wages in industry and augment the purchasing power of large sections of the population that are hitherto not part of the middle class.
Only then would we be able to say that India's "middle class" has arrived.
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