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Introduction

NCAP 2015 Regional Aviation India

This section analyses if the target population of 300 million middle class persons that can afford air travel really exists.

The Indian Ministry of Civil Aviation believes that India has the potential to be among the global top three nations in terms of domestic and international passenger traffic. It believes that India has a 300 million strong middle class, and a rapidly growing economy. The Ministry however quickly notes that “Indian aviation sector has not witnessed the level of growth it should have and at present it is ranked 10th in the world.”

Perhaps one of the many reasons why Indian aviation hasn’t kicked off is the real middle class that can afford air travel. A report by National Council for Applied Economic Research’s (NCAER) Centre for Macro Consumer Research stated that by 2015-16, India will have 267 million middle class people. The report classified middle class as those families with an annual income of INR 340,000 – 1,700,000 at 2009-10 price levels. The percentage of middle class in the total population was forecasted at 20.3 per cent by 2015-16 and 37.2 per cent by 2025-26. This was reported in the Economic Times.

However, an article in The Hindu, published in April 2014, and reproduced by NCAER, defines middle class as, “comprising households with annual income above Rs. 88,800 annually”. The article also states the NCAER as stating that “only 40 per cent of those in the middle class have piped water connections, and only 15 per cent get three hours of water supply every day. Just over half of such families have flush toilets and a similar percentage get 18 hours of electricity in a day.”

The Hindu article also states that the richest 20% of the population, or 244 million, earns above INR 150,000 per year. This is INR 12,500 per month. The article also stated that, “By standard international definitions, like a consumption expenditure of more than $10 (INR 650 by Nov 2015’s exchange rate) per day, India would have no middle class because everyone spending that much is in the top 5 per cent population of the country”. INR 650 per day translates to INR 19,500 per month.

As per the PEW research centre, which in July 2015 released statistics based on 2011 data sourced from the World Bank PovcalNet database (Center for Global Development version available on the Harvard Dataverse Network) and the Luxembourg Income Study database, only 2.6% of India’s population is “Middle Income”, defined as living on U$10.01-20 daily. That converts to INR 19,500 to INR 39,000 per month. Percentage of the Indian population categorized as Middle Income, Upper Middle Income, and High Income total just 3.3% of the Indian population.

The total number of domestic passengers flown in 2011 was 59.8 million, which is 5% of the 1,221 million population in the same year. Total domestic and international passengers totalled 5.7% of the population. Passenger numbers include non Indians, and cannot weed out multiple trips of the same person.

Interestingly, KPMG, in a report titled, “Indian Banking – The engine for sustaining India’s growth agenda” dated 18 May 2013 still refers to the 2001 Economic Times article. KPMG has also made aviation reports which the ministry may have referred.

We believe that the real set that can afford air travel today is much smaller, at only around 60 million – a number close to the total number of domestic passengers carried in CY2014. We leave it upto the reader to arrive at their own conclusions on whether the 300 million strong middle class that can afford air travel is either a myth or reality.

To read about the growth rate required to touch 300 million domestic passengers in CY2021, please click here.

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