India’s New Not-Poor Not-Middle Class
-- and its implications?
November 6, 2011 - New Delhi
Nancy Birdsall
President
Center for Global Development
So what? Does the middle class matter
in developing countries?
- Aristotle
- Engerman and Sokoloff; Easterly
- Acemoglu and Robinson
- Does it matter for the policy mix?
Middle class = secure from poverty
Emerging consensus: $10 per capita per day as global minimum
0
10
20
30
40
50
60
70
80
90
100
World Bank / LAC (2012, forthcoming)
Birdsall (2010)
density estimate
0.8
Easterly (2001)
Birdsall et al. (2000)
Milanovic and Yitzhaki (2002)
B&D (‘08)
Ravallion (‘09)
Kharas (2010)
Brazil’s income distribution (2009)
0
10
20
30
40
50
60
70
80
Income/expenditure per capita per day (2005 PPP dollar)
90
100
With $10 minimum the global middle class
is mostly in the global top quintile, Brazil …
Deciles of household income distribution of Brazil 2009
0
1st
2nd
3rd
4th
5th
6th
7th
8th
9th
10th
World Bank / LAC (2012, forthcoming)
Milanovic and Yitzhaki (2002)
Kharas (2010)
Birdsall et al.(2000)
Birdsall (2010)
Easterly (2001)
Banerjee and Duflo (2008)
Ravallion (2009)
0
0
0.1
1st
0.2
2nd
0.3
3rd
0.4
4th
0.5th
5
0.6
6th
0.7
7th
Deciles of household income distribution of Brazil 2009
Source: CGD calculations, based on SEDLAC.
0.8
8th
0.9
9th
1
10th
. . . in India entirely in top decile.
Deciles of household income distribution
0
1st
2nd
3rd
4th
5th
6th
7th
8th
9th
10th
Brazil
India (Rural)
India (Urban)
0
1st
2nd
3rd
4th
5th
6th
7th
8th
9th
Deciles of household income distribution
Source: CGD calculations, based on India NSSO Socio-Economic Survey 66/1.0 (2009-2010) and SEDLAC.
10th
$4
0
.3
Between the poor and secure middle class is a new global class,
living
on of$4
$10
dayin 2009/2010
Income
Distribution
Indiato
(Rural
and a
Urban)
$10
10
20
Daily household
0
20
30
40consumer expenditure50per c
ousehold consumer expenditure per capita (2005 PPP, uniform reference period)
Population between $4 and $10 a day (urban)
n between $4 and $10 a day (urban)
Population between $4 and $10 (rural)
Estimated income distribution (rural)
income distribution (rural)
Estimated income distribution (urban)
.2
0
0
.1
Source: CGD calculations, based on India NSSO Socio-Economic Survey 66/1.0 (2009
ndia NSSO Socio-Economic Survey 66/1.0 (2009-2010).
0
10
20
30
40
Estimated household income per capita per day (2005 PPP, uniform reference period)
50
income
distribution
(rural)
Estimated
income
distributionand
(urban)
Source: CGD calculations,Estimated
based on
India
NSS Socio-Economic
Survey
66/1.0
(2009-2009)
NCAER NSHIE.
Source: CGD calculations, based on India NSSO Socio-Economic Survey 66/1.0 (2009-2010).
… who are relatively rich, but economically vulnerable.
They are likely to be politically restive – or catalytic (agents).
Deciles of household income distribution
0
1st
2nd
3rd
4th
5th
6th
7th
8th
9th
10th
8th
9th
10th
Brazil
India (Rural)
India (Urban)
0
1st
2nd
3rd
4th
5th
6th
7th
Deciles of household income distribution
Source: CGD calculations, based on India NSSO Socio-Economic Survey 66/1.0 (2009-2010) and SEDLAC.
Economic and social indicators of
the vulnerable/catalytic and middle class (2009/2010)
Median income per capita per day
Median education (adults 25-65)
$4 to $10
$10 to $50
India
$5.40
$12.80
7-8 yrs *
12 yrs*
Brazil
$6.70
$16.20
7 yrs
11 yrs
16
BRA
12
IND
8
4
0
IND
BRA
Years of schooling completed
$10 to $50
income per capita (2005 PPP)
$4 to $10
14
12
IND
10
BRA
8
6
4
IND
BRA
2
0
* Average numbers for primary/middle/higher secondary. Refers to level completed by median adult.
Source: CGD calculations, based on India NSSO Socio-Economic Survey 66/1.0 (2009-2010) and SEDLAC.
Economic and social indicators of
the vulnerable/catalytic and middle class (2009/2010)
Median education (adults 25-65)
$4 to $10
$10 to $50
>$50
$4 to $10
$10 to $50
India
$5.40
$12.80
$59.2
7-8 yrs *
12 yrs*
14-16 yrs*
Brazil
$6.70
$16.20
$72.9
11 yrs
15 yrs
70
60
IND
50
40
30
20
10
0
IND
BRA
IND
BRA
BRA
7 yrs
Years of schooling completed
income per capita (2005 PPP)
Median income per capita per day
>$50
16
IND
12
IND
BRA
8
IND
BRA
4
0
* Average numbers for primary/middle/higher secondary. Refers to level completed by median adult.
Source: CGD calculations, based on India NSSO Socio-Economic Survey 66/1.0 (2009-2010) and SEDLAC.
BRA
.15
Projecting real GDP per capita growth:
Annual % change
(CEPII(CEPII
projections)
Simple three-factor production
function
/ Foure et al., 2012)
China
.1
Real GDP per capita growth
annual average 2012-2030
China:
6.41% p.a.
India:
5.04% p.a.
Brazil:
2.52% p.a.
South Africa: 2.96% p.a.
.05
India
-.05
0
Brazil
South Africa
2005
2010
2015
2020
2025
2030
2035
2040
2045
Year
Growth estimates based on constant elasticity of substitution (CES) function with
India
Brazil
two factors: energy and a composite Cobb-Douglas combination of capital and labor.
China
South Africa
Source: Birdsall et al (2013, forthcoming), based on Foure et al. (2012) and UN Population Division (2012).
2050
India’s vulnerable class peaks
in population and income share in 2030
Income and population share of $4 to $10 group (absolute population in brackets)
50%
45%
(710m)
44 %
(650m)
Population share
40%
35%
33%
(510m)
30%
30%
(420m)
27 %
27%
Income share
20%
17%
12%
(150 m)
10%
8%
0%
2010
2020
2030
2040
2050
Note: Constant 2009/2010 NSS income distribution re-scaled using GDP growth projections.
Source: Birdsall et al (2013, forthcoming), based on Foure et al. (2012), India NSSO (2010), Milanovic (2011), and UN Population Division (2012).
The $10-$50 group in the middle in 2030
Deciles of household income distribution
0
1st
2nd
3rd
4th
5th
6th
7th
8th
9th
10th
7th
8th
9th
10th
Brazil
India (Rural)
India (Urban)
0
1st
2nd
3rd
4th
5th
6th
Deciles of household income distribution
Source: Birdsall et al (2013, forthcoming), based on Foure et al. (2012), India NSSO (2010), Milanovic (2011), SEDLAC (2011) and UN Population Division (2012).
In Brazil & China, coming three decades is about growth of the MC:
In India it’s growth of the vulnerables/catalyzers
India
China*
Brazil
Population (m)
Population (m)
Population (m)
2,000
250
1,500
1,600
200
1,200
1,200
150
900
800
100
600
400
50
300
0
0
2010 2020 2030 2040 2050
Year
0
2010 2020 2030 2040 2050
Year
2010 2020 2030 2040 2050
Year
* Chinese income distribution data likely underrepresents incomes at the top of the distribution.
Note: Constant 2005 income distribution re-scaled by vigintile using GDP growth projections.
Source: Birdsall et al (2013, forthcoming), based on Foure et al. (2012), Milanovic (2011), and UN Population Division (2012).
The State and the $4- $10s:
Protector or Predator?
• Can India have good government (policy
and implementation) before it has a large
and secure middle class?
What kind of social contract by and for the
$4-$10 group?
Redistribution and Income Inequality in the OECD
Gini coefficient
Before taxes and transfers
After taxes and transfers
NOR DEU USA MEX CHL
Source: Foxley (2013, forthcoming), based on OECD data.
India: Options for fiscal redistribution to relieve
poverty are limited. . . .
Income distribution*
Top 5%
$4
per capita per day
< $4 per capita per day
Hypothetical tax rate
Population share (%)
On top 5% to bring everyone to $4
Income share (%)
India
81.9%
40.3%
157.4%
Brazil
28%
5%
14%
Honduras
55%
14%
62%
* income distribution for illustration only.
Source: CGD calculations, based on India NSSO Socio-Economic Survey 66/1.0 (2009-2010) and SEDLAC.
70
Income inequality, India
Much lower than Brazil, and than China, but?
60
Brazil
50
Honduras
40
China
30
India
1980
1990
2000
2010
Year
Source: World Bank PovcalNet, available online at http://iresearch.worldbank.org/PovcalNet (last accessed November 1, 2012)
gini
gini
Are there policy implications?
Thank you
Nancy Birdsall
www.cgdev.org
@nancymbirdsall
Median Income by Income Group:
Projections for India
Median income per capita per day
National $4 to $10 $10 to $50
>$50
2009/10
$1.90
$5.40
$12.80
$59.20
2020
$3.20
$5.30
$17.80
$67.40
2030
$5.20
$5.60
$15.20
$68.00
2040
$8.20
$6.50
$15.80
$64.30
2050
$12.30
$7.70
$16.40
$77.30
Note: All dollar values are in constant 2005 PPP dollar.
Source: CGD calculations, based on India NSSO Socio-Economic Survey 66/1.0 (2009-2010), Foure et al. (2012),
Milanovic (2011), and UN Population Division (2012).
.