The Asian middle class, once a driving force of global economic growth, is now experiencing stagnation, with its expansion rate slowing significantly post-2021. While India remains a key exception, most Asian economies, particularly China, face structural challenges such as economic slowdown, rising inflation, and declining workforce productivity, threatening long-term stability and growth.
About Asia’s Middle-Class Growth
Trends and Challenges
Slowdown in Growth: From 1991-2014, Asia’s middle class grew 6% annually, slowing to 2% in the last decade. Since 2021, only 12 million households have joined annually, mostly from India. Without India, growth drops to just 1.7 million per year.
Decline in Key Economies:China’s middle class is shrinking, while Indonesia’s share fell from 22% (pre-pandemic) to 17% (2024). 6/9 Asian economies have stagnating or shrinking middle classes.
Shift in Consumption Patterns: The slowdown has impacted discretionary spending, leading to reduced demand in key sectors such as automobiles, real estate, & luxury goods.
Workforce Productivity Decline: Labour productivity in Asia’s developing economies has not kept pace with wage growth, leading to economic inefficiencies and reduced competitiveness.
Causes of Stagnation
Persistent Informality in Employment: A significant portion of the workforce remains in informal jobs, limiting income security, social mobility, and overall economic resilience. For example, 61% of Indonesia’s workforce is engaged in informal employment.
Rising Household Debt: High levels of household debt reduce disposable income, constrain consumer spending, and weaken economic resilience. Thailand, for instance, has household debt exceeding 90% of its GDP.
Declining Foreign Investments: A slowdown in Foreign Direct Investment (FDI) reduces industrial expansion, job creation, and economic momentum. Vietnam, for example, has seen a decline in new investment commitments.
Inflation and Cost of Living Pressures: Rising prices erode purchasing power, limiting consumer spending and economic growth. Food prices surged by 46% in the 2010s, and the war in Ukraine further added a 15% hike.
Widening Income Inequality: Economic growth is increasingly benefiting the upper-middle class (earning $5,000–$25,000 annually), while the lower-middle class remains stagnant.
Demographic and Economic Shifts: Even in countries with young populations, such as Indonesia and Vietnam, middle-class expansion is slowing, reflecting broader economic stagnation despite demographic advantages.
India’s Exceptional Middle-Class Growth
Rapid Growth of Upper-Middle Class: India’s upper-middle class (income: $5,000-$25,000) has expanded significantly, adding 100 million households since 2000.
Stagnation in Lower-Middle Class: The lower-middle class (income: $1,000-$5,000) has faced stagnation, with income growth 9% slower than the upper-middle class since the pandemic.
Income Divergence: The gap between upper & lower-middle-class income growth has been widening.
Potential for Deepened Inequality: Divergence could lead to greater social inequalities within India.
Political & Social Impact
Growing Discontent & Protests: Economic hardships among the middle class are triggering political pushback and mass protests (E.g., Indonesia’s demonstrations against governance policies).
Electoral Realignments: Economic distress is reshaping voter behaviour, leading to declining support for ruling parties (E.g., BJP lost 3% of its middle-class vote in India’s 2024 elections).
Surge in Identity Politics: Economic anxieties are fuelling ethnic & religious divisions, undermining reformist movements (E.g., Malaysia’s middle-class struggles have bolstered Islamist & ethnic politics).
Short-Term Policy Interventions: Governments are resorting to populist measures like direct cash transfers to pacify economic discontent (E.g., Thailand’s 10,000-baht cash handouts).
Way Forward
Boost Formal Employment & Skill Development: Reduce informality through labour reforms and vocational training.
Enhance Workforce Productivity: Invest in automation, R&D, and high-skill industries for economic competitiveness.
Attract Foreign Investment: Improve ease of doing business and regulatory frameworks to drive industrial growth.
Control Inflation & Cost of Living: Stabilise essential goods prices & strengthen food & energy security.
Reduce Income Inequality: Implement progressive taxation and targeted welfare schemes for inclusive growth.
Q. Analyse the reasons behind the stagnation of Asia’s middle class and its impact on economic growth. Suggest policy measures to revive middle-class expansion in emerging economies like India. (250 Words) (15 Marks)
Approach
Introduction: Introduce the answer by highlighting the role of the middle class in economic growth.
Body: Define the reasons for middle-class stagnation and its impact on economic growth.
Conclusion: Write policy measures for revival and conclude appropriately.
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