Asian middle class to drive global consumption: ADB

Cheaper products on the shelves,keeping food prices low and provision of more education including skill development will...

Written by Fe Bureaus | New Delhi | Published: August 20, 2010 2:32:25 am

Cheaper products on the shelves,keeping food prices low and provision of more education including skill development will make the Asian middle class the key driver of world consumption,says a new Asian Development Bank (ADB) report.

“The Rise of Asia’s Middle Class” released by the ADB on Thursday says the continent’s middle class will account for 43% of global consumption within two decades. But way before that,the size of the middle class in India and China will be way above that of the US and Europe combined. Already,of the approximately 2.6-billion strong middle class population of the world as on 2005,264 million were from India,with 806 million from China.

The effect,as the report says,will mean they will perform the same function of driving world growth as the US and Western European consumers did through much of the past two centuries.

The report has defined middle class as those who live on $2-20 per day (based on survey data in 2005 purchasing power parity dollars). The report is a special chapter of Key Indicators for Asia and the Pacific 2010,the flagship annual statistical publication of the Manila-based multilateral organisation.

But the report cautions that even as “the emergence of the middle class is expected to be the dominating force globally,” energy price vulnerability and the way each government pushes policy will very strongly determine the actual outcome. It makes the point that a rising middle class will provide more support for globalisation and a market-based liberal economic policy model in all these economies of Asia. The report skips taking any position on whether an emphasis on the middle class will hurt the interests of the poor and instead cites literature to say the interests of the two are largely interdependent.

ADB chief economist Jong-Wha Lee said the rising size of the middle class meant,“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.”

The report,however,warned that more than 75% of India’s middle class is still in the $2-4 daily consumption bracket,the lowest end of the range,which leaves them at the risk of slipping back into poverty in case of a major economic shock like the recent global financial crisis.

Pronab Sen,principal adviser in Planning Commission said the report is unexceptionable,“But I would be more focused on growth from than worry about the slippages from above.” Sen also pointed out that skill development was more necessary to push the lowest income bracket to a sustainable level of income generation,that can continue to propel the economy to a higher growth rate.

The report also points out that while the Indian middle class has been more visible than its Chinese counterpart,the growth in numbers has been more tepid in India.

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