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D.Muthukrishnan (Muthu), Certified Financial Planner- Personal Financial Advisor

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Indian middle class is only 3%

Posted by Muthu on August 2, 2015

Last week, we wrote about Pew Research Center and their classification of global population.

I subsequently read an article written specifically about India.

Based on PPP (Purchasing Power Parity), 1 USD= Rs.14.97 in 2011. This roughly means it takes Rs.14.97 in India to buy something which cost $1 in U.S.

Based on purchasing power parity, the classification of Indian population is as follows:

I’ve rounded off the decimal and taken 1 USD= Rs.15.

Poor: Less than Rs.30 a day

Low income: Rs.31 to Rs.150 a day

Middle income: Rs.151 to Rs.300 a day

Upper middle income: Rs.301 to Rs.750 a day

High Income: More than Rs.750 a day.

So for a four member family to be classified as middle income, their annual income needs to be in the range of Rs.2.20 lakhs to Rs.4.38 lakhs.

So the annual income classification of the above categories are as follows. Please note that this is for a family of four.

Poor: Less than Rs.43,800 per annum

Low income: Rs.45,260 to Rs.2,19,000 per annum

Middle Income: Rs.2,20,000 to Rs.4,38,000 per annum

Upper Middle Income: Rs.4,39,460 to Rs.10,95,000 per annum

High Income: More than Rs.10,95,000 per annum

Based on the analysis of Pew Research Center, the percentage of our population in each category are as follows:

Poor: 20%

Low income: 77%

Middle income: 3%

Upper middle income & Rich: 1%

The above findings of Pew Research Center more or less matches with NSSO ( National Sample Survey Organisation) statistics.

As per NSSO (coming under Ministry of Statistics), only 2.1% of the country earn above Rs.3,36,000 per annum and 72% of the country earn less than Rs.67,200 per annum. To my understanding, this is not for a family of four but based on per person.

If we convert it to family of four, 2.1% of households earn above Rs.13.44 lakhs per annum and 72% of the households earn less than Rs.2.68 lakhs per annum.

For a nation, to be identified as middle income, it has to have an annual per capita of USD 5000. That works out to Rs.3.2 lakhs per person per annum and Rs.12.8 lakhs per annum for a family of four.

There is a view that 20% or more of India would be middle income by 2030.

Let us hope many more families join our nation’s middle class in the years and decades to come.

3 Responses to “Indian middle class is only 3%”

  1. ravi said

    muthu, regarding NSSO, iam not sure about, the findings..
    in my village, none of the people has ever paid income taxes, some of their incomes far exceed , even highly qualified individuals..to check their income status , check their marriage functions.. alternate medicine doctors, rarely pay taxes..

    • RAKESH SINGHAI said

      I agree entirely.Most people do not pay taxes and hence all this NSSO data is bunkum.Leave aside income tax,even sales tax is not paid.You go to any shop.There is a price with bill and without bill.Informal economy is several times bigger than what is captured.Even a panwallah,makes 30000 a month easily.Even household maids make 15000 per month in cities.
      Unless taxation issue is resolved very substantially,all the statistics is balloney.
      Entire retail trade is done on cash,with even payments between suppliers to retailers being done on parchi.

  2. Amit said

    I agree with other comment. Even you take a cup of tea in Europe, whether you ask or not, they will give a bill from their machine. Every expense is accounted for. in my opinion tax should charged on expense not on income. Government can generate huge money.

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