Author: Ullas Rao
Expert Speak | Raisina Debates | Published: February 25, 2026
The Political Economy Behind India’s Burgeoning Middle Class
By Ullas Rao
As India marks its emergence as the world’s fourth-largest economy, the country’s ascent to upper middle-income status is likely to be influenced by a slew of interacting forces: political governance, institutional independence, and the rights of economic agents. As an agglomeration of diverse regional political economies shaped by equally divergent talents, resources, and aspirations, India’s transition into an economic powerhouse is predicated on the collective wellbeing of these constituent units. In a federated structure built on the twin pillars of democracy and the distribution of power, the rise of an aspirational economy driven by its people’s discretionary spending cannot be overemphasised. In that sense, India’s evolution on the global stage is not strictly comparable to that of China.
Even though India and China gained independence around the same time, the political economies that have come to shape these two giant Asian nations are vastly different. While China pursued economic reforms with a razor-tight grip on political freedoms, India followed a socialist economic path founded on political freedoms, enshrined as fundamental rights in the Constitution. This distinction assumes significance, as any meaningful comparison between the two nations, without consideration of their political economies, risks flawed conclusions.
Peter Rosendorff highlights that authoritarian power structures tend to produce flatter incomes, depleting capital stock, and shrinking workforce participation. On the World Bank’s consumption-based Gini measure for comparable years, India (25.5) records lower inequality than China (35.7), though cross-country comparisons remain sensitive to methodology.
The socio-economic benefits afforded by India’s democratic set-up cannot be readily compared with China’s state-capitalist model under single-party rule. The liberty available to private enterprise to challenge the state before an independent judiciary constitutes a significant non-pecuniary reward consistent with democratic governance.
As China transitions from a middle-income economy to an aspirational society seeking Western standards of living, its growth model remains concentrated on export-led manufacturing. Sectoral imbalances, exacerbated by real estate challenges, persist. Economist Jeffrey Sachs has underscored the importance of finance and investment in sustaining development.
China’s reliance on traditional lending institutions, combined with limited retail borrowing avenues, has encouraged shadow banking activity, often bypassing regulatory oversight. High levels of non-performing assets impair bank balance sheets and pose systemic risks. Amid geoeconomic pressures — including tariffs and trade barriers — the IMF expects China’s growth rate to moderate from 5 percent in 2025 to 4.5 percent in 2026. A structural shift toward consumption-driven growth has been widely advocated.
In contrast, India’s democratic framework provides institutional safeguards. The landmark Indian Supreme Court verdict setting aside the retrospective tax demand on Vodafone illustrates how judicial checks can restrain executive overreach. Such institutional independence encourages long-term capital formation and country-specific investments, benefiting India’s growing middle class.
Even during the COVID-19 pandemic, the government relied primarily on in-kind welfare support rather than inflationary cash transfers, thereby mitigating price shocks that affected several Western economies.
India’s middle class — defined as households earning between INR 5 lakh and INR 30 lakh annually — is projected to reach 715 million people by 2030, rising from 14 percent of the population in 2004–05 to 46 percent by 2030. While income comparisons in non-dollar terms invite debate, purchasing power parity measurements in local currency offer greater accuracy in assessing domestic wellbeing.
A country of India’s scale cannot neglect those at the bottom of the economic pyramid. The state bears a moral obligation to uphold the social contract through sustained welfare measures aimed at improving living standards.
Finally, the private sector’s role in India’s economic ascent is indispensable. As geopolitical uncertainties reshape global trade dynamics, India appears relatively insulated. This presents an opportune moment for private enterprise to adopt a risk-on approach and catalyse investment. Public-sector stimulus alone cannot drive growth indefinitely without risking crowding out. Recent labour code reforms seek to balance employer and employee interests, further strengthening the investment climate.
India may still trail advanced economies in per capita income, but its democratic framework and institutional resilience position it for sustainable, long-term progress. Nation-building, after all, is not a 100-metre sprint — it is a marathon.
Author Credit:
Ullas Rao is a Finance faculty affiliated with the Manipal Business School (MBS), Manipal Academy of Higher Education (MAHE), Dubai.
Editorial Note:
CIRSEV agrees with Mr. Rao’s assessment that India’s democratic political economy — anchored in institutional independence, welfare inclusion, and private enterprise — provides a sustainable pathway for long-term middle-class expansion and economic resilience.
