China-India – Expanding the middle classes

Indian consumers’ spending power is far behind that of their Chinese counterparts, and we are sceptical about the pace of catch-up. Even if the Indian economy achieves the ambitious growth targets set, there are few signs that record levels of income inequality will reverse soon.

What you will learn:

• The income distribution within the middle class underscores the extent of the current divergence between China and India. India’s middle class remains heavily concentrated at the lower end of the income spectrum. However, our estimates suggest that efforts to reduce inequality could lift 100 million more Indians above the US$10,000 (upper middle-income class) threshold over the next decade.
• The enormous potential of an expanding middle class with rising purchasing power can’t be overstated. It carries positive long-term ramifications for labour productivity and the economy’s overall growth resilience, and bodes well for companies looking for new vibrant markets.
• Theoretically, unlocking this potential entails expanding the size of the overall economic pie – the ‘China way’ – and ensuring more equal distribution.
• In China’s case, it’s less the inability, but more a seeming unwillingness to spend that is holding back consumers. In India, progress on various reforms to create employment outside of agriculture is crucial to raise incomes broadly and unlock the population’s spending power.