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India's middle class driving innovation, consumption, but still vulnerable: ADB | Innovative, cheaply priced products targeted at India 's
booming middle class are helping to spur domestic consumption and growth but the sector remains vulnerable to economic shocks and carefully calibrated policy measures will be needed to sustain income gains in the longer term, says a new Asian Development Bank (ADB) report. In a special chapter of Key Indicators for Asia and the Pacific
2010, its flagship annual statistical publication, ADB says the ranks of India's
middle class, defined as those consuming between two and 20 dollarsper day (based
on survey data in 2005 purchasing power parity dollars), grew by around 205 million
between 1990 and 2008, second only to the People's Republic of China. The surge
in numbers has seen additional annual sector spending of 256 million dollars and
spawned low-cost, locally produced products and services such as Tata Motor's
2200 dollars Nano Car, the Godrej Group's 70 dollar battery-operated refrigerator,
and cheap mobile phone rates. The special chapter, titled "The Rise of Asia's
Middle Class", also notes that the emergence of a substantial middle class in
India has created new avenues for employment and entrepreneurship, and a louder
voice for improved public infrastructure and services. At the same time, more
than 75 percent of the country's middle class remain in the 2-4 dollar daily consumption
bracket, the lower end of a range of 2 to 20 dollar, leaving them at risk of falling
back into poverty in the event of a major economic shock, such as the global financial
crisis. Infrastructure constraints, like unreliable power supplies may also hamper
consumption of durable goods. To help unlock the full potential of the Indian
middle class as consumers and drivers of growth, the report says the government
must continue to remove structural and policy impediments to the sector's development
and improve income distribution across the population. Actions should include
infrastructure improvements and social safety nets that encourage spending, while
providing a buffer during hard times. The government should also put in place
policies that stimulate the creation of stable, well-paid jobs, and encourage
entrepreneurship and education. "Policies that bolster the middle class may have
benefits not only for economic growth, but may be more cost-effective at long-term
poverty reduction than policies that focus solely on the poor," said Jong-Wha
Lee, ADB Chief Economist. The report notes that while a strong middle class is
necessary for sustainable economic growth, higher incomes are resulting in environmental
pressures and a rise in 'diseases of affluence' such as obesity, which policy
makers will increasingly need to address. |
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