Booming middle class spurs India's growth, says ADB report

16:59, August 19, 2010      

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India's booming middle class is spurring local consumption and supporting the country's growth, but economic shocks might wipe out those gains, the Asian Development Bank (ADB) said Thursday.

According to Key Indicators for Asia and the Pacific 2010, ADB' s flagship annual statistical publication, the ranks of India's middle class, defined as those consuming between 2 to 20 U.S. dollars per day, grew by around 205 million between 1990 and 2008.

The expansion of the middle class sector boost consumption spending and spawned low-cost, locally produced products including economy cars, battery-operated refrigerator, and cheap mobile phone rates. Increased spending also supported growth of one of the world's fastest growing economies.

But ADB said that more than 75 percent of the country's middle class remain in the 2 to 4 U.S. dollars daily consumption bracket, the lower end of a range of 2 to 20 U.S. dollars. This means that there's a high risk that they'll fall back into poverty during a major economic shock such as last year's global recession.

ADB Chief Economist Jong-Wha Lee said that the Indian government must promote policies that protect and improve the living standards of the middle class sector.

"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, " he said

The ADB suggested that the government should invest in infrastructure improvements and social safety nets and promote policies that encourage entrepreneurship.



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