Thursday, August 26, 2010

I find this ADB report a bit dubious!

TOI had this report from Rukmini Shrinivasan - Times Insight Group.

NEW DELHI: Despite its shaky empirical foundations, the myth of the Great Indian Middle Class persists. A new Asian Development Bank report lauds the rise of the Indian middle class and projects it as the engine of global growth. However, according to the definition used in the report itself, the vast majority of this middle class earns between Rs 1,000 and Rs 2,000 per person per month. Only 0.0009% of Indians earn more than Rs 10,000 per month.

The ADB's Key Indicators for Asia and the Pacific 2010 report released this week has a special chapter on the Rise of Asia's Middle Classes. Projecting that the Asian middle class will dominate the next two decades (including crossing a billion in India alone by 2030), the report says that Asia's emerging consumers are likely to assume the traditional role of the US and European middle classes as global consumers, and to play a key role in rebalancing the world's economy.

However, the definitions used to arrive at such conclusions scarcely fit with the traditional definition of the middle class, as those who have not inherited wealth, hold regular jobs and enjoy a degree of financial security that allows them to consume and save and support the maintenance of law and order. The ADB report defines the middle class as those earning between $2 and $20 per person per day, measured in international dollars, ie adjusted for purchasing power parity. The ADB does add further nuance by splitting the middle class into three sub-sections: lower middle class ($2 - $4), middle middle ($4 - $10) and upper middle ($10 - $20).

The vast majority of the Indian middle class 82% of it, or 224 million people - however, fit into the first category. Since $1 PPP is Rs 17.256, this means that the vast majority of the Indian middle class earns between Rs 1035 and Rs 2070.

The ADB report shows that middle-class Indians systematically define themselves as poorer than they actually are in surveys. Even by this fairly stingy definition, in all of developing Asia, only Uzbekistan, Lao, Nepal and Bangladesh have a middle class that is a smaller proportion of the total population than in India. China's middle class is 63% of its population, Sri Lanka's 59% and Pakistan's 40%.

The table which is on the printed version:
Poor (Rs 1035 per person per month) ----825 million
Lower Middle Class (Rs 1035 -Rs 2070)---224 million
Middle Middle Class (Rs 2070 - Rs 5177)---45 million
Upper Middle Class (Rs 5177- Rs10,354) ---5 million
RICH (Rs 10354--) ---1 milion--Something is totally amiss here!
Only good news is that there is no one below poverty line (BPL)
HOw did this happen I wonder!

There were a few comments on the web edition of the report which rightly ridiculed this report. Then there is a comment from one Rajiv from Toranto: the ADB report is based on consumption per day, not income and that too on PPP basis. I hope some one will clarify.


Prakash Kamath said...

Reports of ADB, World Bank, IBRD and IMF are like other UN reports having no connection to reality. They are used as basis for granting of loans. India as I understand have borrowed to their limits and they are apparently canvassing to get their limits increased.
If you think in these terms then the report makes a perfect case to lend more money to India and China as it signifies that the country has the capacity to repay.


srinidhi said...

Thanks Prakash. Quite an unflattering opinion of such august bodies, I must say!