The Hindu Business Line : `A one-billion middle-class deluge from India, China by 2020'

The collective might of the middle-class - annual income above $5,000 - in India and China is estimated to explode to the one-billion mark by 2020,with China having 650 million and India 350 million individuals in this income group, estimates an independent research report complied by theMasterintelligence Knowledge Panel of MasterCArd, the global payments solution company.

In 2004, this number was 79 million in China and 12 million in India, said Dr Yuwa Hedrick-Wang, Economic Advisor (Asia Pacific) of MasterCard International, who heads a panel of economists conducting research on the business environment in the Asia Pacific region.

Economic editors' meet

Presenting the salient features of its latest study at a Roundtable of economic editors in Singapore on Tuesday, Dr Yuwa said: "The demand and supply shock" of the burgeoning millions in China and India has already been felt by the global, particularly the US, economy.

The $5,000 figure is an important benchmark in any community. When annual income is below this threshold, "household consumption tends to be dominated by expenditure on basic necessities, which have relatively less business and economic impact. As soon as income exceeds the $5,000-threshold, marginal expenditures shift quickly to discretionary appending such as dining out, personal travel, auto purchases etc and these have a huge business and economic impact," says the report.

India is of specific significance to the users of such surveys because by 2015, it is estimated that beyond the "middle classes", the rich - those earning $2,20,000 and above per year - will rise from an estimated 53,000 in 2005 to 1.5 lakh in 2015, with half of them being located in the cities of Delhi and Mumbai.

At the end of the spectrum, families earning less than $2,000 a year (or a per capital of $400 a year) will fall from 80 per cent of all Indian households to about 52 per cent in 2010, pushing upmarket demands from Indian consumers.

Dr Yuwa said the danger lay in "over-simplification" of the impact of the rise of India and China on the global economy platform. Discussions are often framed in two polar extremes: hype and scepticism. On the hype side, we have popular titles like the `Chinese century' and `India unbound'. On the other hand, there is no shortage of sceptics who continue to question Asia's future viability; hence warnings of the `coming collapse' of this and the "imminent crisis of that."

Balanced views

He added that his survey took a balanced views of things, going beyond hype and scepticism to identify and expose specific economic dynamics and fundamentals in Asia that are changing the global market.

"The report questions many myths about China such as the suggestion that Chinese exports are cheap because labour is cheap there. This was too simplistic as see from an analysis of the textile and garment industries, where China was an acknowledged global leader. Wages in these industries are higher in China than in Pakistan, India, Bangladesh, Vietnam and Indonesia, China's competitors."

But despite higher wages Chinese garments and textiles were more competitive because of its better infrastructure and logistics, greater production scales and often advanced technologies, added Dr Yuwa.

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