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Subject COMMERCE

Paper No and Title 5 – Business Environment

Module No and Title 25 - Social Groups-Middle Class Dualism in Indian Society

Module Tag COM_P5_M25

COMMERCE PAPER No.5 : Business Environment

MODULE No.25 : Social Groups – Middle Class Dualism in
India
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TABLE OF CONTENTS

1. Learning Outcomes
2. Introduction – Social Groups
3. Impact of Existence of Economic Classes in Society
4. Emergence of Middle Class in India
5. Middle Class Dualism
6. Factors causing Emergence of Middle Class in India
7. Impact of Emerging Middle Class group on Business Environment
7.1. Changing middle class consumers’ habits
7.2. Changing business strategies for middle class consumers
7.3. Impact of growing middle class on various sectors
8. Conclusion
9. Summary

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1. Learning Outcomes
After studying this module, you shall be able to

 Know the meaning and classification of social groups

 Understand the term middle class dualism
 Identify the factors causing emergence of middle class in India
 Analyze the impact of emerging middle class on business environment

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2. Introduction

Social Groups

A social group is a group of individuals who mutually interact and participate in similar kind of
activities, have some degree of reciprocity to achieve similar goals. Social groups can be
categorized as economic groups - on the basis of amount and kind of economic income and
wealth defining economic position in a society, cultural group – on the basis of cultural interests
and traditions, and social groups- on the basis of social resources in terms of social contacts.
Generally the social group is defined as an economic group highlighting the status of groups and
individuals on the basis of income, wealth, esteem and prestige. Economic groups of people can
be classified under three broader class classification on the basis of income.

Figure 1: Types of Economic Classes

Economic Classes

Upper Class - The richest Middle Class - Working Lower Class - Lowest
and powerful class class with limited income income group.
level

1. Upper Class- It is the richest and powerful class as the people belong to this class are
very rich, have higher source of income and generally own and control the maximum
means of production. They enjoy high standard of living with huge luxuries and comforts
and possess high quality products and fine jewellery with their high purchasing power.
2. Middle class- This class lies between upper and lower class of society. It is a working
class comprises of professional workers, small business owners, low-level managers and
white collar workers. They enjoy those luxury and comforts which are available at
reasonable rate as their purchasing power is less as compared to the upper class. They
usually possess sufficient and stable housing, healthcare and educational opportunities,
retirement policy. This class has the biggest force influencing economic growth of an
economy by providing huge source of educated white collar workers, small
entrepreneurs, new ideas of creativity and innovation, sensitivity towards environment
and positive politics.
3. Lower class- It is the lowest income group comprising of the low working class, blue
collar workers who work in low paying jobs with less financial security and under class

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group of unemployed or homeless people. They earn

very low or minimal income and thus get assistance
from the state for their social welfare and basic necessities.

3. Impact of Existence of Economic classes in Society

The existence of different types of economic classes in a society has its manifolds effects on
different aspects of society which can be explained as follows-

1. Education - The economic class has its influence on the availability of educational
opportunities for different classes. The children of upper class and higher level of middle
class families can enjoy high quality of education in exclusive schools, colleges and
institutes as their parents can afford their expensive education. On the other hand the
government funded schools are available for lower classes which generally do not
provide quality education to their children. This difference in education level usually
leads to such kind of class differences across generations.
2. Health and Nutrition - Similarly the existence of economic classes influences the
physical health, availability of proper medical care and nutrition, life expectancy of
people belonging to different classes. Lower-class people suffer the most in terms of high
health problems like disablements, infant mortality rate, communicable diseases, low and
irregular quality of health care, as a result of their economic status. They have less
provision of health insurance for them than middle and upper class workers even if they
work in more hazardous and unhealthy environment.
3. Employment - The influence of classes can be observed in the job conditions as well.
Those in the upper-middle class enjoy greater freedom, authority, respect, diversity and
job security, in their occupations as compared to the working lower middle class. The
physical working conditions also vary greatly between classes as blue collar workers
tends to have more health hazards or injuries at job place as compared to middle class.
Their level of job satisfaction is very less as compared to the middle class.

4. Emergence of Middle Class in India

In India, on the basis of household income, a family having an annual household income between
Rs 3.4 lacs to Rs 17 lacs (at price levels of 2009-10) falls in the middle class category. (As per
2000-01 prices, a family with income of Rs 2-10 lacs fell into this category).

Due to the fast economic growth in India, the income level of the average household has shot up
between 2000/2001 to 2009/2010. In this period, high economic growth pulled out millions of
households out of poverty and resulted into the emergence of new middle class who has new
consumption patterns and a strong interest in stable, transparent and accountable political and
economic conditions in the democratic Indian economy.

Figure 2: Growth in Middle class group in India

Years Future Expectations

2009/10 With GDP growth of 9% & above
Size 2015/2016 2025/26

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Percentage of
middle class
families in 12.8 20.3 37.2
total
households
Number of
individuals in 153 millions 267 millions 547 millions
middle class

The above table has been prepared on the basis of the report by National Council for Applied
Economic Research's (NCAER) Centre for Macro Consumer Research. As per the report the size
of Indian “middle class” a new, income-based “class” of the not poor but not too rich in India
has grown from 5.7 percent of total households in 2001/02 to 12.8 percent in 2009/10 due to
increase in per capita income with the increasing rate of National income. It is expected to further
grow to 20.3 percent by 2015/16 and 37.2 per cent by 2025/26 due to the country's projected GDP
growth of 9 percent and above and high growth rate of urbanization.

From 2009/10 onwards, India is having the largest middle class group, a group which stands at
higher level than the poorer masses but has not yet attained the level of the richer class. The rising
Indian hard working middle class seeks better quality of life with their high potential purchasing
power as they tend to spend more than 50 per cent of their total income on purchase of durables
and other items. The higher growth rate of the middle class households leads to huge demand for
good quality of movable assets and gadgets such as cars, LCDs, LEDs, laptops, air-conditioners,
microwave ovens, cell phones etc. Thus they have been creating a huge target market for the
white goods and automobile makers in India.

Middle class has not emerged only as consumer class but majority of businessmen in India
including many big Indian names like Tata, Birla, Modies, Ambanis etc., who contributed much
in Indian growth also belongs to the middle class. Hence the growth of middle class in India is
both the cause and effect of Indian economic growth.

5. Middle Class Dualism in India

In the United States America, the term middle class is divided into two sub categories as upper
middle class and lower middle class on the basis of the nature of employment of people of middle
class. Upper middle class people holds high employment positions which require certain
minimum qualification level like college or graduate degree while lower middle class includes
lower working class and blue-collar hard workers.

How this middle class is defined in India? As per India’s National Council of Applied Economic
Research (NCAER), the middle class comprises two sub-groups: Lower middle class i.e.
“seekers” with annual household income between Rs. 200,000 and Rs. 500,000, and upper middle
class i.e. “strivers” with annual household income between Rs. 500,000 and Rs. 1 million at the
price level of 2001/2002.Wide inequalities prevail in these two sections of society.

Figure 3: Middle Class Dualism in India

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Basis Lower Middle Class Upper Middle Class

Annual
Between 2 Lacs to 5 Lacs Between 5 Lacs to 1 million
income

Nature Subsistence Sector Developed Sector

People are traditional and People are socially and culturally

Outlook
superstitious advanced
People are immobile and
Advancement People are mobile and ambitious
unambitious
Education Highly educated with technical
Less educated or uneducated
level and professional knowledge
Engaged in white collar jobs,
Nature of Engaged in agriculture, small
professional works and
work business units and blue collar jobs
businesses.

Lower middle class - The majority of the people i.e. two third of the Indian population lie in the
lower middle class and poverty groups. This group is also named as Subsistence sector as it is
undeveloped and backward sector. The people of this sector are highly traditional and have much
faith in customs, traditions and superstitions which make them highly immobile and unambitious.
They are engaged in agriculture, small business units, village industries which are less capital and
technology intensive and thus serve only the local markets. They have low level of income with
which they are able to purchase few cheaper domestic consumer goods produced by the small
scale industries. They generally get the State assistance to get basic necessities.

Upper middle class - The upper and upper middle class section of Indian society constitutes only
one third part of the total population. They have different lifestyles from lower middle section as
it is a developed sector with a strong economic base. They are socially and culturally advanced as
they generally have less interest in casteism, outdated traditions and superstitions. This makes
them forward with modern outlook, highly educated, ambitious and mobile. People of this sector
are engaged in white collar jobs, professional works and businesses. Their income levels are high
and thus have strong purchasing power. They tend to follow lifestyle of western nations. They
usually create demand for sophisticated goods preferably imported goods and gadgetry having
snob appeal as they consider them of supreme quality in comparing with goods of domestic
consumer goods industries.

6. Factors Causing Emergence of Middle Class in India

The Indian middle class has started growing at such a fast pace that by 2025 it will dominate the
Indian cities .About 400 millions Indian city individuals will have a comfortable standard of
living.
The main reasons behind the emergence of middle class consumers in India are as following:

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Figure 4: Factors causing growth in Middle Class Group

Urbanization

Development
Increase in
of rural
Income
areas
Factors
causing
Emergence of
Middle Class
Breaking up in India Spread of
of joint family Education
system

Increase in
Working
Women

1. Urbanization: The urbanization growth has taken millions of people out of poverty i.e.
lower class and thus contributed in building a huge concentration of middle class in
India’s urban areas. Rapid population growth accelerates the growth of urbanization as
now 29 per cent of Indians live in urban areas which are expected to increase to 37 per
cent by 2025. It is estimated that by 2025 about three-quarters of India’s urbanites will
belong to the middle class which is around one-tenth today as many lower class people
will make the jump out of poverty and enter into the new and aspiring middle class. This
shift in class of people is also bringing change in their taste and preferences like normal
television has become the necessity and LED as luxury item, fast food is preferred as
compared to normal Indian food, cell phone has become the necessity and western
clothes has taken the place of Indian clothes. Thus the demand for quality and innovative
comfort and luxury items is increasing day by day.
2. Increase in Income: In India the National income and per capita income has increased
during last few years due to high GDP growth. This ultimately has resulted in an increase
in personal income and purchasing power of people with which they seek to achieve high
standard of living. But due to the unequal distribution of such increased income among
people of different regions and groups, the emerging middle class has also been divided
into lower and upper middle class.
3. Spread of Education: Education level of people has increased in India which enable
people to get white collar jobs and higher income level. It also increases consumer
knowledge and awareness about markets and benefits of good quality products. Thus they
have become the major target in the market.

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4. Working Women: In current scenario, the large

numbers of women are educated and working and thus support their families financially.
It has led to increase in the household income and increase their spending as well as
savings level.
5. Breaking up of joint family system: In ancient India, joint family system was very
prevalent where head of the family had all decision making authority and they had
limited spending power due to the pressure of many family members. But now nuclear
family system has become more popular where both husband and wife are generally
working and thus have more purchasing power to spend on comforts and luxuries.
6. Development of rural areas: In India the rural sector has achieved a huge development
as a result of Green revolution, infrastructural development by government and
establishment of industrial zones in rural areas. Like a small town Sanand village of
Gujarat has emerged as a booming entrepreneurial centre after the establishment of Nano
factory there. It has resulted in the emergence of a rich farmer class with high purchasing
power with which they tend to spend more on comforts and luxuries to imitate the
lifestyle of urban areas to get the status of upper middle class. These developments
resulted in the declination of poverty in Rural India from 94 percent in 1985 to 61 percent
in 2005, and it was expected to drop to 26 percent by 2025. But it is still a struggle for
small farmers who are having less purchasing power and not able to spend on necessity
and education because of the unequal distribution of income generated in the rural sector.

7. Impact of Growing Middle Class on Business Environment in India

7.1. Changing middle class consumer's habits:
In India, the new middle class in Indian society includes government officials, college graduates,
rich farmers, traders, businessmen and professionals. As these people are continuing climbing the
economic ladder in last few years, middle class people have got high salaried and income sources,
their purchasing power has increased due to secured source of income which motivates them for
high spending. They have created a change in work ethic by giving more importance to job
interest, job initiatives and job satisfaction as compared to monetary returns and job securities at
professional ground which has led to improvement in productivity and efficiency in an economy.
Changes have been observed in consumerism due to changing composition of spending and
saving pattern as they want to spend more and save less and expectations of growing middle class
consumers. Their consumption pattern has been dominated by unlimited comfort and luxury
goods with limited necessity goods. They demand improvements in infrastructure and good
quality of public services, health care and skills oriented education that can improve their job
prospects, economic prospects and quality of life. They have started spending more on advanced
mode of communications, luxury, recreational and leisure activities that put big strain on
infrastructure facilities and scarce resources. In other words, the new middle income families
have changing values which may provide a push for high economic development.

1. Preference for sensitive products- Indian middle class consumers have high purchasing
power which has made them more value sensitive as compared to price sensitive as they
can purchase even expensive products which can offer them high value.

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2. Use of international brands- The middle class

consumers tend to imitate western culture by demanding and consuming foreign
companies products but with some Indian taste and touch in them. Due to this fact many
foreign companies like McDonalds, Pizza hut, Starbucks, Pepsi, Coca Cola, MTV have
started giving an Indian touch to their products and services in order to flourish in India.
3. Preference to change - The middle class consumers are not restricted to a single brand
as they prefer changes and good features of product more as compared to brand name.
4. Increasing craze of shopping mall- A new emerging trend of Indian middle class is to
prefer going shopping malls where they can have better shopping facility and
entertainment under one roof and do shopping with the use of credit card which can
increase their purchasing power.

Thus this rising middle class consumers and their changing consumption patterns create positive
business opportunities in business environment for many rapid growth market players along with
the requirement of controlling increasing pressure on scarce resources. They have started
investing in green technologies, public transport, improved infrastructural facilities to capture the
gains from this rising group. Many international companies providing luxury goods have recently
rushed into Indian market like Louis Vuitton bags and Jimmy Choo shoes, Prada bags, Marks &
Spencer products as they tend to develop tastes and lifestyle followed in developed countries like
brand name goods, vacations abroad, the latest consumer electronics, personal care products and
high-end cars.

7.2. Changing Business strategies for Middle Class Consumer

The emerging new middle class section has changed Indian market from seller market to buyer
market and created a tough competition in the Indian market. Their consumption patterns have
changed as they demand quality and innovative products and show dissatisfaction for poor quality
products and after sales services. Thus companies are required to understand and analyze the
growing demand and changing tastes and preferences of the middle class consumers. To attract
this huge class of consumer companies tend to provide quality products and offer many benefits
and facilities to make these luxury and dearer goods affordable for them.
1. Credit Financing- Many companies have started offering hire purchase system, credit
facility at zero per cent finance or finance at low charges or against gold etc schemes
which encourage the middle class consumers to spend more than their income.
2. Cash Discounts- Many types of discounts like seasonal discount, festive discounts,
anniversary discounts, specific day offers etc. are being offered to make luxury and
expensive goods affordable for middle class buyers.
3. Gifts and Presents- Companies offer different types of gifts and presents like free gift
coupon, buy one get one free offer, gift on every purchase etc. to make goods or services
more attractive for customers.
4. Modifications- To make luxury or expensive items affordable for large number of
middle class consumers, companies redesign their products according to their purchasing
power like small sachets/bottles of famous shampoos/lotions, low range smart
phones/LCDs for lower middle class consumers and economy tour packages, affordable
ranges of highly expensive branded goods, new version of luxury cars at lesser price for
upper middle class consumers.

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5. Exchange Offers- To motivate consumers to upgrade

their durables by replacing their old ones, they provide
attractive exchange offer by offering good values for their old products. Like exchange
old inverter with new one and get up to 40% discount etc.
6. After Sales Services- To win the loyalty of the middle class consumers, companies make
full efforts to provide them after sales services so that they can get fuller utility of their
money.
7. Eco-friendly Products- The recent growth of educated upper middle class consumers
has led to increase in environmental awareness in India and made consumers more
sensitive about ethical and environmental issues. They prefer to purchase and consume
eco friendly products. This prompts companies to produce eco friendly products and their
packaging and perform effective marketing for eco friendly feature of their products.
Thus, they maintain balance between environmental concerns and commercial
considerations.

7.3. Impact of Growing Middle Class on Various Sectors

1. Private health care sector - The growth in the spending on private health care has been
observed in India due to the high priority given to private health care products and
services by the middle class consumers with their income growth. This creates positive
business environment to grow in this sector as the spending on private health care is
expected to grow by almost 11 percent a year and will reach a high to 13 percent of the
total Indian households’ consumption expenditure by 2025, a larger proportion of
purchases than the current levels of many big countries.
2. Education Sector- Education sector is also becoming an attractive sector for investment
as it has become the priority of households emerging from poverty in the rural areas to
educate their children and high income middle class urbanites prefer to spend more on
better-quality education, reputed university degrees, and study-abroad programs so that
they can get good employment and earn more to reach in high income group. This sector
is expected to grow by 11 per cent in coming years, and will be 9 percent of total
household consumption expenditure by 2025. Since the rising demand for education has
not been matched by the limited supply of government-run institutes and universities,
there has been an upsurge demand for the setting up of private educational institutes and
universities. Also, there is need for setting up vocational training centers for imparting
specialized skills required in sectors such as IT, healthcare, etc. Thus this rising demand
creates a healthy business environment for investment in this sector by domestic private
sector and foreign investors.
3. Transport sector– Transportation will also take a bigger portion of household
consumption expenditure in coming year due to the increasing demand for normal cars as
comfort and high end cars and bikes as luxury by upper middle class people with the
booming economic growth in India. It creates positive business environment for
automobile as well as auto-ancillaries and spares part industry to grow. Many
international brands have entered and set up their base in this sector in India like
Volkswagen, Hyundai, Renault, Mercedes etc. to capture this growing market along with
the strong domestic manufacturers. This has created intensify competition in business
environment and forced manufacturers to be more innovative and responsive to customer
needs in designing their products and to attract consumers by providing easy vehicle
finance, attractive rate of interest and flexi installments scheme and exchange offer with

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true value of old vehicles. As a result of this India’s

automobile market has become the 2nd largest two-
wheeler market, the 4th largest commercial vehicle market, and the 11th largest
passenger car market globally.
4. Government sector – The cases of corruption and bribery is high in India. Earlier this
class was generally ignored in politics because of less in numbers. The low-income
groups were having large majority of the voters and the high income group acted as an
influential class. But now with the emerging strong middle class, in future their demands
cannot be ignored in a democracy like India and thus it will become the strong influential
power in politics both as a voter and as a politician.
5. Development of small cities - Small cities have become attractive for firms in the
outsourcing, IT off-shoring, retail and real estate development sectors because the
majority of Indian educated middle class emerge and live in small cities. Many of these
cities have good quality universities that produce a number of high quality graduates &
engineers. These cities provide ample space at cheaper cost, good quality of employees
and large number of growing customers which attracts many outsourcing, IT & retail
industries. The government has also initiated the promotion and development of these
cities as an attractive investment options to reduce the congestion in Tier I cities and
make more uniform development of the country.

Thus, India’s rapid economic growth has lifted hundreds of millions of Indians out of severe
poverty and created a massive middle class section in the cities. The country’s middle class group
is expected to grow to more than 40 percent of the population by 2025 and will create the world’s
fifth-largest consumer market in India as the spending patterns of this class of people will shift.
Their needs, tastes, aspirations, and brand loyalties will evolve along with their lifestyles and
their discretionary purchases will capture a large proportion of consumer spending. Thus the
growing middle class and especially upper middle class creates a positive environment on the
business environment in India which can be proved by the fact that total foreign investment in
India grew manifold during the last few years. India has become the hub of rising industries and
attraction for foreign investment and firms. Along with business opportunities, this brings new
competition from the entry of foreign companies in Indian market, from settled Indian companies
looking for expansion opportunities, and from new entrepreneurs with their new ventures in
business environment. They will have to spot the gaps and opportunities arising in business
environments due to the change in class structure with growing income as an attacker. Attackers
seeking to exploit these opportunities should innovate new business models for developing new
ways to create and introduce new products or brands that meet the changing needs, tastes and
provide aspirational lifestyle to these eager consumers within their income sources, to compete
most effectively and capture a big share of this new middle-class market.

8. Conclusion
India is growing at such a rapid pace that by 2025 it will emerge as the world’s fifth-largest
consumer economy which will generate significant benefits to the India and the world. The
economic growth in India will pull hundreds of millions of people out of poverty and bring them
into the middle class. With rising incomes, Indians middle class consumers will have the
opportunity to enjoy comforts and pleasures enjoyed around the world to attain the high standard
of living as with the increase in their disposable income they can demand for good quality,
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branded and luxury products. Their rising expenditure on

domestic consumption, housing, health care, transportation and
education will become the cause of further economic growth and more employment opportunities
in future as companies will expand to meet the new high consumer demand. For the world’s
businesses, India will emerge as one of the largest consumer market opportunities in the next two
decades.
But with all these positive sides it has a dark side also like rise in demand for new services and
innovative products will fuel consumerism and this will lead to high inflation in an economy so it
is the challenge in business environment for both the Government and companies to maintain the
balance between increasing demand created by this growing class and development of required
infrastructure to satisfy these demands with the available resources so that inflation can be curbed
out and they can attain high living standard with their given budget

9. Summary
1. Social groups can be broadly categorized as economic groups, cultural groups and social
groups. But generally social groups are defined as economic groups only.
2. Economic groups highlight the status of groups and individuals on the basis of income,
wealth, esteem and prestige. It s broadly classified as upper, middle and lower class.
3. Different economic classes have their impacts on different sectors like education, health
care and nature of employment in the society.
4. Due to the fast economic growth in India since 2001-02, the income level of people has
shoot up and a large number of people have entered into the middle class out of the lower
class. Urbanization, increase in income, education spread, working women, development
of rural areas are some factors causing emergence of middle class in India.
5. In India, middle class is divided into two groups i.e. Lower middle class with annual
income between Rs. 200,000 and Rs. 500,000, and upper middle class with annual
income between Rs. 500,000 and Rs. 1 million at the price level of 2001/2002.Wide
inequalities prevail in these two sections of society.
6. The rising Indian hard working middle class seeks better quality of life with their high
potential purchasing power by demanding good quality of movable assets and high end
gadgets.
7. They have created changes in consumerism as well as in work ethics.
8. They have created demands for better infrastructural facilities, education opportunities,
health care facilities, international brands, quality products and services and better
politics.
9. The rising middle class consumers and their changing consumption patterns create
positive business opportunities in business environment for domestic and international
market players along with the requirement of controlling increasing pressure on scarce
resources.

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