What is "middle class" in India? Here's an analysis

There’s a lot of confusion about what being “middle class” means in India.

A lot of rich people think they’re middle class. At the same time, a lot of rich people also think that poor people are middle class. Since there's no formula that can put a stamp of middle class on someone (and even literature around this matter is very vague and abstract), people often come up with pretty bizarre notions on this. Here's a good way of looking at the subject.

India's nominal GDP per capita = $2,480. That's ~ ₹2.1L/year.

But the problem with per capita income is that it's calculated by dividing the total GDP by the entire population, neatly. But not everyone in the population can even work, right? There are babies, old people, dependents, etc. Ideally, if you're looking at estimating where you are as far as earnings are considered, it makes sense to only compare amongst the working age population, i.e. people eligible to work (18-64 year olds).

So what's the working age population in India? It's about 67% of the total population.

Basis that, what would be the average income of a working age Indian? It'd be $3.5T divided by 67% of the Indian population (943 Mil people).

$3.5T/943 Mil ~ $3700, or ₹3.1 L/year.

Therefore, to be right in the middle in India as far as earning capacity, you'll need to be making over ₹3 Lakhs/year. At that state, you'll be at the mean (but not median) of the working age population of the country. But there's another problem.

Incomes and standards of living are different in different parts of the country. A person making ₹3 Lakhs in a small village of Bihar will have a very different life from someone making the same amount of money in Delhi. This changes a lot of things. Like spending, savings, and even general lifestyle.

So, to solve for this, we'll have to go local and see the numbers in a shorter geographic circle. Speaking of which, what's the GDP per capita of Delhi?

It's about $5,233, or ₹4.45 L/year.

But as suggested earlier, a better metric is GDP/working age population. What would that be for Delhi?

Dividing Delhi's GSDP (about $120 Bil) by the total working age population of Delhi (about 11 Million people), we get $11,237, or about ₹9.55 L/year.

Therefore, to be right in the middle as far as earning capacity in Delhi, you'll need to be making about ₹9.5 Lakhs/year. That's average (not median). And yes, the average gets distorted by the outliers who make a lot of money. But in the real world, they count, and so they'll count here as well.

In other words, a middle class guy in Delhi is someone who makes about ₹10 L/year.

Here's why this makes sense.

Let's say you're making ₹10 Lakhs, and you have a family of 4 with another person at home making ₹5 Lakhs. What's the total earning of your household? ₹15 Lakhs.

And what would be income/person at your family? About ₹3.75 Lakhs/year. Which is less than the per capita income of Delhi. Ask anyone in that range, and they'll probably feel very middle class.

Double that amount (₹30 Lakhs for the household), you’ll start seeing what “well off” looks like. Double it further (₹60 Lakhs), you’ll get a feel of “rich”. Double it further (₹1.2 Crores), and you’ll see “very rich”, “elite”, and so on.

Dynamics of a village family will be very different.

If this article catches on, I'll spend some significant time on writing a deep, exhaustive analysis on this topic.

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