Modi and the neo-middle class

I haven’t seen a better summing-up of the 2014 Lok Sabha poll results than what a Wall Street Journal article has said in a single sentence. Narendra Modi, to quote, “tapped into the frustrations of a generation of Indians who climbed out of poverty in the past decade, but who have been prevented from joining the middle classes by slowing growth and a lack of employment” (Niharika Mandhana, WSJ , May 17).

This assessment succinctly captures what was perhaps the United Progressive Alliance’s (UPA) greatest achievement, which also, however, contributed to its recent massive electoral rout.

The 10 years under the UPA saw the Indian economy grow by an average 7.6 per cent a year; 8.3 per cent if you exclude 2012-13 and 2013-14.

More important, between 2004-05 and 2011-12, the ratio of Indians below the official poverty line fell from 37.2 to 21.9 per cent, which was much sharper than the decline from 45.3 to 37.2 per cent over a longer period from 1993-94 to 2004-05. This reduction was more pronounced in rural than urban areas.

Also, as Arvind Panagariya — he may well head the next Prime Minister’s Economic Advisory Council — has shown, the poverty ratio declines were higher for people from the Scheduled Caste, Schedule Tribe and Muslim communities than those belonging to so-called forward castes and the general population.

Now, we may debate poverty lines or what being poor really means. But whichever measure is used to correspond to the most comprehensive definition of poverty, the numbers are likely to reveal the same trend: In no period before in India’s recorded history did poverty levels fall as they did under UPA. And traditionally marginalised communities weren’t excluded from this process.

Another way to understand what growth and rising real incomes in the past decade did is to look at National Sample Survey Office (NSSO) data on household consumer expenditures.

The accompanying table shows the share of food in total consumer spend; it fell far more between 1999-2000 and 2011-12 than over the preceding 12-year-period both in rural and urban areas. This pattern is particularly visible in the case of cereals.

Equally significant is the changing composition within food expenditure, with the drop in the share of cereals being accompanied by an increase in that of milk/dairy products in rural India — again more marked in the last 12 years. This, even as milk has overtaken cereals to account for over a fifth of the average urban Indian household’s food basket today.

The last decade, simply put, was a story of people increasingly spending less of their incomes on food. Simultaneously, they diversified their diets away from cereals to ‘superior’ foods such as milk, eggs, fish, meat and beverages. Growth in incomes allowed vast sections of Indians to go beyond roti to engage in some discretionary spending.

Such widening of consumption opportunities — resulting from unprecedented growth rates over a sustained period — can have huge social implications even when the change occurs from a low base.

When people see growth happening around them and also experience some improvement in their own consumption standards, it unleashes a surge in aspirations. Even those just emerging out of poverty suddenly wake up to the possibilities of becoming ‘middle class’. In concrete terms, it means moving from plain roti to getting good shiksha (education) for their children, apart from bijli (electricity), sadak (roads) and paani (water).

Frustration comes precisely when these aspirations are not realised with the growth engine stalling, as it has in the last 2-3 years. What has worsened things is high food inflation.

True, we had soaring food prices through the last decade as well. But the difference was that incomes, too, were rising then. High growth enabled creation of jobs in construction, manufacturing and services, leading to an estimated 37 million workers being pulled out of farms between 2004-05 and 2011-12. It also resulted in average agricultural wages rising by 5 per cent per annum in real terms after adjusting for inflation.

The fact that income growth more than made up for food price increases is borne out by NSSO consumption data. It shows the average share of food to consumption expenditure falling from 55 to 48.6 per cent for all rural and from 42.5 to 38.5 per cent for all urban households between 2004-05 and 2011-12. Moreover, these percentages declined even for the bottom50per cent households — from an average 65.6 to 59.5 in rural India and from 58.8 to 54.1 in urban India.

The short point is that food inflation mattered during the high growth period of 2004-2011, but not to the extent of impacting overall consumption. The vast majority saw their incomes go up significantly enough to improve their living standards and dream of a middle-class future.

These hopes of “joining the middle-classes” have suffered a setback since 2011-12, as growth has slowed down even with continuing food inflation.

Nobody, indeed, was able to tap into the frustrations of this ‘sandwich class’ — neither poor nor rich and not yet middle class — better than Narendra Modi.

Modi actually first talked about a ‘neo-middle class’ during the Gujarat Assembly elections in 2012. His party’s manifesto for the state even pledged to ‘define’ such a category with a view to working out welfare schemes specifically targeting this class.

The Congress/UPA, on the other hand, failed to recognise what high growth had done in lifting millions out of poverty and how those same millions had developed aspirations going beyond roti to shiksha-bijli-sadak-paani .

The Congress Lok Sabha poll manifesto did promise “to bring around two-thirds of our population — the skilled hands that build India — into the middle class”. But it was clearly too late.

Ultimately, the neo-middle class that was the product of the past decade proved to be the Grand Old Party’s gravedigger.