Monday, July 12, 2010

The New Indian Middle Class and Japan-India Partnership: Legal Restraints and Economic Opportunities

(Lecture delivered at Ryokoku University, Kyoto Monday 12th July 2010)
© Mukesh Williams

The lecture deals with new trends in the rise of the new Indian middle class, middle class consumerism, Indian demography, the stability/instability of economic institutions, continuous women empowerment, Khap panchayats, strategies of economic survival, what Japan can learn from Indian example, the rise of elite institutions such as IITs and St. Stephen’s College, NRIs, the power of design, cooperation between Indian and Japanese business companies, areas of possible investment, and overcoming legal restraints and legal reforms.

In the last two decades India has seen tremendous economic progress and technological boom, giving rise to the new Indian middle class and opening economic and scientific opportunities for all classes both domestically and internationally. Since the liberalization of the Indian economy in 1991 by the then finance minster and now Prime Minister Manmohan Singh India’s Gross Domestic Product has steadily risen from just 4 percent to over 10%. Even after the global economic recession in the wake of Lehman Brothers scandal in 2008, India still performed well. Its GDP has continued to grow at a rate of 6.5% per annum. Though China’s GDP is much higher, it is more from the manufacture and production side that China gains its strength. India’s strength lies more in the intellectual and professional class. It is speculated that China’s heated economy will cool down in the coming years while India’s intellectual strength will not decline.

Indian population is around 1.11 billion. And India has all religions of the world including Christianity, Judaism, Zoroastrianism and Islam. There are 14 official regional languages. The Mughals came in the 16th century and ruled until the 18th when they were displaced by the colonizing British until India gained freedom in 1947. The Muslim rulers bought Persian while the British English. India became a polyglot nation where most intellectuals were able to master more than two languages. Today both English and Hindi are used for official purposes. However it is English which dominates. There is a suggestion of evolving a common national language with Hindustani in Roman script. Till then Indian English rules the roost.

Marx once defined the middle class on the means of production comprising of small business owners, self employed, managers and supervisors. The Indian middle class is estimated at about 300 million about the same as the population of the United States of America. As people from different strata and regions are joining the middle class it is becoming more diverse and heterogeneous. The rise of the middle class is a function of neoliberal policies of the government in the early 1990s celebrating the victory of capitalism over socialism. Since then there has been a great emphasis on market and privatization and retreat of government intervention.

The growth of the new middle class has been a function of the globalization of economy. This has created class conflict and friction between lower and new urban classes and resulted in the rise of the new poor and the new rich. Leela Fernandes in India’s New Middle Class locates the origin of the new middle class much earlier in the colonial period when they got access to English education, employment in modern professions, enhanced political awareness of public representation and self identification as neither colonial subjects nor marginalized groups (Fernandes, 2006 2). McKinsey Report suggests that today India has about 50 million new middle class who have disposable incomes of 200,000 to one million rupees.

As recently as 1985 about 90% Indians lived on less than a dollar. Now they are consuming high end cars and designer clothes. In 20 years India will surpass Germany, with its 5th largest consumer market. Today the middle class is over 50 million but in 2025 it will be about 583 million about 41 % of the population. These households will see their incomes balloon to 51.5 trillion rupees ($1.1 billion)—11 times the level of today and 58 percent of total Indian income. The popular cars for the upper middle class, new middle class and middle class are Audi A4 Sedan 16 million; Maruti Esteem 1 million yen; Maruti 800 half a million yen. They are also buying white goods such as refrigerators, washing machines, air conditioners, computer and music systems.

India missed the agricultural revolution. It missed the industrial revolution but it caught the technological revolution. Why did this happen? It is to do predominantly with the starting of higher technical institutes in the 1950s called Indian Institute of Technology or IIT. The idea of starting the IITs along the lines of MIT in America was initiated by Sir Ardeshir Dalal in 1946. The first IIT was established at Kharagpur in May 1950. Jawaharlal Nehru called it “India’s future in the making.” The IITs of the 1950s paved the way for India’s economic and intellectual progress in the 1990s. I am also a product of IIT Delhi and have taught at IIT Madras and St. Stephen’s College, Delhi. St .Stephen’s College began producing skilled students in the 1960s and 1970s who joined the civil services like Montek Singh Aluwalia, became lawyers like Kapil Sibal, professors like Manmohan Singh or went aborad to work in the Silocon Valley in California. Many joined the IMB, Microsoft and NASA increasing the Indian representation in these companies to 30% of the total workforce. Today the Indian community in the United States is called a ‘model minority’ for its intellectual excellence, law abiding nature and contribution to the American economy.


Indians aboard are called immigrants in other countries but NRIs or Non Resident Indians at home. NRIs have contributed substantially to India’s wealth through investment at home. The Indian banks especially the State Bank of India provides them with tax free foreign currency fixed deposits in USD, Deutschmark, English pounds and Japanese yen from 2.5% to 4 % per annum. Today there are 24 million Indian overseas making the Indian Diaspora only next to China in terms of intellectual and economic presence. About 24,000 live in Japan and 2.7 million in the United States. In Nepal there are about half a million living as expatriates.

The demand for innovative and cheap design in India is really high—whether it is a car or a treadle water pump. The Nano model was produced by Tata Motors and priced at 200,000 yen. It is the cheapest car in the world and therefore rightly called “The People’s Car.” The Treadle Water Pumps
it is a human powered Pump which lifts water from 25 feet from below the earth and saves on energy and resources. It is now used in rural India. It increases cropping by 200-300 % and is marketed by IDEI under the Krishak bandhu ‘farmer’s friend’ program in east India here are roughly 7,50000 such pumps each pump costs 2400 yen.


India’s competence is further accelerated by high competence in English proficiency and mathematics skills. English has been for all intents and purposes the official language of the bureaucracy and the intelligentsia. English is used as a tool to knit the country together, advance intellectual and scientific competence and conduct business. It is not used to understand the ‘culture of the other country.’ Schools in India teach English language but not universities where it is expected of students to use it as the medium of English at most universities is English.

In the last 160 years Indians have learnt the English language and transformed it into a local Indian vernacular. They can write it with ease and speak it fluently. The Indian accent has prompted some people to call it Indian English just as American accent has made English spoken in America as American English. Today there are 750 million English speakers more than the combined population of America (300 million; only 94% speak English) and Britain (61 million).The added strength of English speakers in the two countries is less than that of India.

Where do the young who make the middle class come from? Obviously they come from elite English medium institutions such as St. Columbus, Jesus and Mary Convent, Mayo College, Xaviers, St. Joseph’s and Ravenshaw. A lot of them are referred to as Mission schools as they were either set up by the British to promote English education, opinions, morals and intellect or run by convent nuns or Jesuit priests. During the colonial period they served British interests but today they impart quality English education based on Scottish or English Enlightenment values of sound scholarship, critical inquiry and Christian brotherhood. Recently public schools like the Kendriya Vidhlaya or central schools have also come up to cater to the needs of the urban middle class. As compared to American or British schools, Indian schools are relatively cheap. The average annual fees for a student until high school would be approximately one million yen (for foreign students) and 250000 yen (for Indian students). Students studying at university colleges and living on campus may spend about 200,000 to 250,000 yen a year pursuing humanities or science courses.

These students enter elite institutions of higher learning such as St. Stephen’s College Delhi, Loyola College Madras or Presidency College Calcutta. I taught for nearly 20 years at St. Stephen’s College where 99 % students go to the US universities with full scholarships and at the top of American colleges. St. Stephen’s was established in 1881 by the Cambridge University Brotherhood and has a strong connection with Gandhi, The Gadar Party and the Freedom Struggle. Originally it was set up to cater to the needs of the poor but today it is seen as an elite institution catering to the bureaucracy, politics and education.

This does not mean that Indian students will not come to Japan even when they are wooed. India is a vast country with 369 universities and 18064 colleges. Over eleven million students are enrolled at these universities and colleges where English is largely the medium of instruction. Japan has 726 universities with over 2.8 million students. There are thousands of students in India who do not belong to the prestigious institutions named earlier. They come from middle-level universities and see Japan as a possible destination to secure a future. Such students may not have found a good American or European university to go to and they would be most willing to try their hand at a Japanese university. The bind however is that Japanese universities do not want such students; they want the very best. More and more Japanese students should also be allowed to study at Indian elite institutions and find jobs wherever they wish to.

As a result of both elitist and egalitarian learning the stranglehold of caste is gradually loosening. Caste has not gone altogether, nor will it ever go, but it is getting linked to other social factors such as class and lower caste job reservations. It is possible to see students from various minorities (such as Muslims and Christians (and backward castes and tribes (such as SCs and STs) getting education alongside upper caste Hindus. In urban area excellence and skill has replaced caste lineage, though in matters of marriage caste still plays a significant role.

There is a greater preference amongst the young to choose their own partner from their school, college, workplace or other associations they belong to. These days the new trend is a mixture of arranged and love marriage where the girl or boy first select each other, then their families arrange their match according to custom and practice. However in some village in Haryana, Western Uttar Pradesh, Rajashthan and Punjab there is a reemergence of prohibiting same clan marriages. The khap means a group of villages of the same clan. The khap panchayat or clan court was established by upper caste jats in the 14th century to oversee same clan marriages called gotra marriages. The idea is that all boys and girls within a clan are considered siblings and therefore are ineligible to marry. The khap forces such couples to either commit suicide or conduct honor killings. Honor killings have got much publicity in the media. The national government is now formulating a legislation to seek criminal indictment in khap killings. The khap on the other hand either deny this altogether or justify their acts and want the marriageable age to be reduced to 15 to prevent adolescent girls from running way with their lovers. However in cities more women are choosing their own partners and entering elite work places which were earlier reserved for men.

It is now possible to see women working in information technology, space technology, education, business, medicine and bureaucracy. Today’s India’s ruling Congress Party chairman, Mrs Sonia Gandhi, the President Prathiba Patil, many governors of states, chief ministers are women. However the disparity in opportunity between rural and urban women is great. Most rural women do not have access to proper education or rights to self-empowerment. Though sati, johar and devadasi practices are banned, women still do not enjoy a safe social environment. More work has to be done for continuous empowerment of women in rural areas.

Finance is the science of money management. A system involves institutions, agents and practices, liabilities and markets. The Indian banking and financial infrastructure was always more conservative when compared to the US. It has a highly modern NSE, ATM banking, cell phone banking and other infrastructure. Unlike US banks it is not generous with its loans. Most Indians who returned from the US complained about the tight-fisted policies of the Indian Reserve Bank of India. It has deposits of over half trillion US dollars and accounts for three quarters of the country’s financial assets. It has grown annually at a rate of 18%. For example if you wanted a loan of 4 million yen you would have to show collateral in terms of property or a job which would ensure your ability to pay back. Only then you would get a loan around 70% of the original demand that is 3 million yen. It was not possible to get a 100 % loan even after surety. But if India faced an economic crisis like the US would India survive? Our banking needs to be regulated.

Globalization and liberalization has increased financial opportunities for India. This helped business to survive and banks to remain healthy. But there are problems .Since capital is not easy to get Indian banks offer reasonable interest rates on investments to encourage financial savings. The government takes most revenue from savings at low rates and leaves Indian business weak. About 80% of the banking system is in the public sector while only 20% in the private sector. About 3% of the total deposits are in the private sector. We need to strengthen our slow legal system, remove corruption, make financial working more transparent, implement rigorous norms and give appropriate incentives.
With the rise of corporate culture and liberalization the bureaucratic problems called the license raj are slowly becoming less. The authoritarian rule imposed by the government is slowly receding. Business is freer and functions with less constraints and government support. India is now trying to attract foreign business and create a one-window access for business.

Though our legal system is cumbersome and slow it works quite impartially at the High Court and Supreme Court levels. Even if justice is mislaid in lower courts in the case of Jessica Lall and Priyadarshini Mutto cases, the High Court usually rectifies them. However the justice system needs many reforms such as increasing the number of functionaries, speeding the judicial process, protecting witness and removing police corruption.

The Indian media operates with a relative degree of freedom in India unlike China or other countries such as Singapore and is quite critical of various institutions including the government and other agencies. A free press is quite important for the smooth functioning of democracy. There is a fair degree of transparency in hiring judges and other legal functionaries. Job vacancies in universities are also advertised in the press and are followed by a fair process.

India is a new republic though it has an ancient culture. It is possible for India and Japan to expand the present areas of cooperation especially in the areas of pharmaceuticals, raw materials and human resource. Japan can invest more in Indian infrastructure, financial sector and nuclear technology. It has already invested in the areas of automobile technology, urban railroad development, fabricating business corridor and IIT education.

India is growing rapidly and has a great business and intellectual potential which Japan can exploit profitably. In the last decade the cooperation between the two nations has been growing. Japan's total loans to India were $4,239.0 million in 2004, grant aid $ 399.2 million, while technical cooperation totaled $ 179.5 million. Major Japanese companies are making profit in India and wish to expand their business in future. Though there are differences in culture, business practices and environment, the Indian market is potentially big. There are possibilities for Japanese business to invest in Indian transport, power and telecommunications. Japan ranks seventh in terms of cumulative foreign direct investment (FDI) in India, accounting for US$ 3.61 billion in the period from April 2000 to December 2009, of which US$ 1.08 billion came in the period April-December 2009. The Delhi-Mumbai Industrial Corridor with Japanese cooperation is about to complete. The success of this enterprise will further encourage Japan to invest in India and make profit. Other areas for future exploitation are medicine, higher education and information technology.

Domo arigato gozaimata.
(My special thanks to Professor Manoj Shrestha, Konan University, and to the law, business and economics major students of Ryukoku University)

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