“Missing Middle” Fallacy: Why India’s Economic Transformation Is Structural, Not a Mirage
The “Missing Middle” Fallacy: Why India’s Economic Transformation Is Structural, Not a Mirage
A recent critique of India’s economic trajectory—amplified by a Bloomberg analysis—asserts that India is structurally incapable of producing a middle class. The argument hinges on familiar tropes: a supposed absence of civic values, immovable social hierarchies, and endemic institutional decay. While such claims generate provocative headlines, they ultimately rest on a static and deeply cynical reading of Indian society—one that is increasingly at odds with empirical evidence on poverty reduction, institutional reform, and the historical pathways of late-industrializing economies.
To describe India as a “society without values” is not merely a moral overreach; it is an analytical failure. It ignores one of the largest and fastest episodes of social mobility in modern history and mistakes the turbulence of transition for the permanence of dysfunction.
1. Data Versus the “Hollow Growth” Narrative
The claim that India is bifurcated between a “tiny elite” and a vast, immobile underclass collapses under scrutiny. According to the United Nations Development Programme (UNDP), India lifted 415 million people out of multidimensional poverty between 2005 and 2021—a transformation of historic proportions. No economy characterized by “hollow growth” accomplishes this.
Much of the confusion stems from an overly rigid definition of the middle class. Measured by the “global middle class” threshold—often defined as daily incomes of $10–$100—India’s expansion naturally appears slower than China’s extraordinary, state-driven surge. But this framing misses the emergence of a rapidly expanding neo-middle class: households transitioning from subsistence to discretionary consumption, formal finance, and aspirational mobility.
Consumption Reality. India’s digital payments ecosystem tells a more grounded story. In 2023 alone, the Unified Payments Interface (UPI) processed over 117 billion transactions, reflecting not elite indulgence but mass participation in a rapidly formalizing economy.
Infrastructure as Mobility. Claims of infrastructural absence also fail the facts. Over the past nine years, India has added nearly 55,000 kilometers of national highways and more than doubled its number of airports. These investments are not cosmetic; they are the physical ladders through which labor mobility, market integration, and regional convergence occur.
2. Institutions in Reform, Not in Free Fall
The critique’s portrayal of India as a rent-seeking society where corruption functions as culture overlooks a critical institutional shift: India’s deliberate use of technology to bypass traditional bottlenecks rather than reform them incrementally.
Direct Benefit Transfer (DBT). By linking biometric identity (Aadhaar) to bank accounts and mobile numbers, India has eliminated layers of intermediaries in welfare delivery. Independent estimates suggest that DBT has saved over $30 billion by reducing leakage and fraud—hardly evidence of institutional nihilism.
Market Unification. Similarly, the introduction of the Goods and Services Tax (GST) dismantled a fragmented internal market and replaced it with a unified national trade regime. While implementation has been uneven—as democratic reforms often are—the structural effect has been to reward scale, compliance, and productivity over local protectionism.
These are not the actions of a system collapsing under its own weight; they are hallmarks of an economy consciously modernizing its governance architecture.
3. The China Comparison Trap
Much of the pessimism surrounding India arises from an implicit comparison with China’s meteoric rise. Yet this comparison is deeply misleading. China’s middle-class expansion was underwritten by an authoritarian command economy, an unprecedented property boom, and a debt-fueled investment model that is now exhibiting clear signs of stress.
India’s growth, by contrast, is consumption-led and democratic. Democratic growth is slower, noisier, and messier—but it is also more resilient. The “caste arithmetic” decried by critics is not a deviation from development; it is the political incorporation of historically excluded groups. Far from suffocating meritocracy, this process broadens the social base from which a durable middle class can emerge.
Inclusion, not suppression, is the long-term foundation of social stability.
4. Cultural Values and the Logic of Aspiration
Assertions that India lacks trust, accountability, or entrepreneurial values are contradicted by both global and domestic evidence.
Entrepreneurship. India is now the world’s third-largest startup ecosystem, home to more than 100 unicorns. These firms operate within global capital markets, subject to rigorous due diligence, governance norms, and competitive pressures—conditions incompatible with patronage-driven cultures.
Education and Aspiration. Perhaps the strongest indicator of societal values is aspiration. Across urban and rural India alike, lower-middle-class families invest disproportionate shares of income in education. This is not the behavior of a society resigned to hierarchy; it is the clearest signal of faith in upward mobility and merit.
5. Global and Geopolitical Reality
Finally, the claim that India lacks a future middle class is increasingly detached from global economic behavior. The reconfiguration of global supply chains—particularly the “China-plus-one” strategy—has seen firms such as Apple, Samsung, and Micron expand manufacturing in India at scale.
Multinational capital does not relocate on sentiment. It moves in anticipation of a workforce, a consumer base, and institutional depth that can sustain long-term returns. The “middle” is precisely where these companies see India’s future.
| Metric | “Mirage” Claim | Data Reality |
|---|---|---|
| Middle Class Growth | Stagnant or absent | Projected to reach ~40% by 2031 (PRICE) |
| Poverty | Structurally entrenched | 415 million lifted out (UNDP) |
| Governance | Corruption-driven | Digital public infrastructure reducing leakage |
| Foreign Investment | Investor hostility | Record FDI inflows ($84B, FY22) |
Conclusion: Transition Misread as Failure
The so-called “missing middle” is not evidence of civilizational failure but a snapshot of a society in transition. India is actively constructing the digital, physical, and legal infrastructure that late-stage middle-class societies require—and doing so within the constraints and complexities of democracy.
Caste, inequality, and regional disparities remain formidable challenges. But they are being contested in public, through institutions, rather than frozen under authoritarian discipline. To dismiss a nation of 1.4 billion people as “without principle” is to ignore the measurable advances in transparency, connectivity, and human development that are reshaping its economic foundation.
The mirage, in other words, is not India’s middle class.
It is the belief that India’s future can be judged by its past rather than by the structural transformations unfolding in the present.
[Disclaimer (NOTE): The above blog is written as a personal response after reading the following article in Bloomberg that criticizes India growth story without much research.
https://bloomberg.com/opinion/articles/2025-12-18/why-india-fell-off-the-global-middle-class-map]
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