Why India fell off the global middle-class map

By Andy Mukherjee

In 1980, neither China nor India had much representation in the “global middle class” — people who neither belong to the bottom half of the income distribution nor rank among the top 10 per cent worldwide. Almost a half-century later, things have changed — but in very different ways. China now accounts for a sizable share of the more affluent middle-income earners, while India seems to have faded in relative importance.

This finding, nestled in the annual World Inequality Report, is a puzzle. After all, the only two countries with billion-plus populations are both believed to have done well by embracing capitalism and opening their economies after the collapse of the Soviet Union. China became the factory to the world; India became its back office. So why should the outcomes for their citizens be so different?

To unpack this puzzle, start with Indians who are outside the middle class. The top of the pyramid is made up of what Marcellus Investment Managers in Mumbai has termed as the “Octopus Class,” the 1 million super-wealthy individuals whose affluence and disposable incomes are close to first-world levels. This tiny group has earned high returns from financial markets, and grown rich by serving each other and affluent customers around the world as corporate honchos, bankers, lawyers, and other top professionals. But the bottom is bursting at the seams, particularly since the pandemic when 800 million people came to survive on free food grains from the government. They still do.

Between the bookends of wealth and welfare lies the problematic domain: work and wages.

In both China and India, surplus labor in agriculture followed the textbook model of development: It provided the ballast for industrialsation, urbanisation, and creation of a middle class. But unlike in China, where young people of both sexes migrated to cities, in India mostly the men went; women from landless peasant families found seasonal work at brick kilns and construction sites. Most others stayed back, leaving the most-populous nation with one of the worst rates of female labor force participation in the developing world. After the pandemic, this ratio began to rise. But that was largely because of an increase in work on the farm and self-employment. Those don’t pay enough.

Meanwhile, the opportunities for men who came to cities were limited by the reach of their caste, a birth-based social identity unique to South Asia. Although upward mobility at the lower end of the hierarchy has improved somewhat in recent years, it’s still severely restricted. State jobs, where historically discriminated groups could get the benefit of affirmative action, have become rare. Like their fathers before them, a majority of male workers remain trapped in low-productivity, low-income occupations, such as guards, chauffeurs, gardeners, and handymen.

Most of these findings are drawn from the State of Working India 2023 report by Amit Basole and his team at the Bengaluru-based Azim Premji University. (A new edition is expected in 2026.) As the economists have argued, India missed out on the expected transfer of labor from subsistence-oriented occupations to profit-led activity. Three out of four nonfarm workers are stuck in the informal sector.

A stunted middle class may be a direct result of this extreme inequality. Folks at the top of the ladder don’t see the teeming masses as a meaningful market, except for utilities, soap, short videos, and personal loans. Meanwhile, those at the bottom of the pyramid lack the education and skills to manufacture things for the wealthy at home and overseas. A rapidly digitising economy needs young internal migrants for gig work — like deliveries for 10-minute quick commerce. While it’s no stepping stone to a middle-class life, it’s all that there is for the youth: The return on an additional year of schooling is lower than not just China, but also Sub-Saharan Africa, according to the World Inequality Report.

At the top of society, mobility is limited globally. Many in today’s Chinese elite are descendants of those who had prominent roles during the Communist revolution of 1949. India’s business tycoons are mostly a leftover of the mercantile interests that had thrived under pre-1947 British colonial rule. They’re guided by short-term returns. Instead of replicating their Chinese counterparts’ aggressive investment in technology, their one brilliant idea for scaling up manufacturing is to lobby for relaxed labor laws — so they can extract a 12-hour workday.

The top 1 per cent Indians own 40 per cent of overall personal wealth, but Gen-Z billionaires are bored with business. They would rather park their fortunes in family offices than start new enterprises. In the Soviet-styled planned economy that extended up to the 1980s, their grandparents scrambled for licenses. Nowadays, their parents just fight each other for a favorable government policy and haggle with private-credit firms for refinancing.

An unambitious elite spoiled by finance — plus a working class held back by inadequate education and inequities of caste and gender — are stymying the emergence of a global middle class in India. The social change that can fill the gap is nowhere on the horizon.