July 26, 2024
📰 FEATURE STORY
Has the 2024 Budget delivered for the middle class?
As the 2024 Budget was being presented in Parliament by Finance Minister Nirmala Sitharaman, the memes began to take shape. All eyes were on what the Modi 3.0 government would do in its first full budget since they’re now tethered to coalition partners. The government had a lot on its plate.
What will be in it for the middle class is the prevailing feeling in the aftermath. The government knows it has to create jobs, keep inflation in check, and provide adequate resources to several sectors. To some, it’s a middle-class budget catered toward them. For others, there’s not much here for the Indian middle class. Which is it?
Context
The Indian middle class is diverse, heterogeneous, and classified by different occupations, education and income levels. Since the 2000s, this group has expanded significantly and now represents a sizeable consumer market for Indian and foreign companies. Successive governments have always known that one of their priorities is to grow this base.
While the Indian middle class came to be in the early 19th century, their economic potential was fully known only in the 21st century. Companies realised they could drive global consumption. It has always been tricky to present the actual size of the Indian middle class. Since it mainly comes down to how much they spend, there are different ways to go about it.
Let’s use a classification where expenditure is between $2-10 per capita daily. Then, over 600 million Indians were in the middle class in 2012. If we use a daily income threshold of $17-100, then over 400 million Indians are middle class as of 2021. Irrespective of the methodology, one thing’s clear – the number of people considered middle class has increased since the liberalisation policies of the early 1990s.
As the country began to liberalise, people got better-paying jobs and began to spend and save more. As their numbers grew, they also became a vote bank. The social and economic diversity among the middle class attracts different political ideologies and agendas.
In 2021, A Pew Research Centre poll showed that the Indian middle class contracted during the pandemic. The government had to do many things at once – keep people employed, provide financial assistance, and ensure enough jobs for poorer Indians. What complicates matters is several communities and sub-communities vying for their shot by asking for reservations and quotas.
The government and the Budget play a delicate balancing act – keeping everyone happy. On one hand, there’s the large corporate sector. Then there are millions of people in the middle class looking to see if education, healthcare, employment, etc, will become more accessible. Has the 2024 Budget delivered?
VIEW: A middle-class forward Budget
Prime Minister Narendra Modi was direct in his assessment of this year’s budget – it’s one for the middle class. Ahead of the Budget, there was a lot of discussion on whether the middle class will get any tax relief. The government obliged. For starters, the rejig in the direct tax slabs is expected to amount to upto ₹17,500 in savings for the middle class. Then there’s the increase in the rebate limit to ₹7 lakh.
The government could provide this tax relief because direct tax collection has been better than expected. In FY2024, it surged by 17.7% to ₹19.58 lakh crore. Another tax incentive was increasing the exemption limit of capital gains on certain listed financial assets from ₹1 lakh to ₹1.25 lakh per year. Jobs were a mantra for this year’s Budget. Despite some data indicating record-low unemployment, the government acknowledged the need to generate high-paying sustainable job opportunities. Here’s where the Employment Linked Incentive (ELI) will help.
The budget has focussed on the poor, women, youth, and farmers through employment, skilling, and other opportunities. A key thrust of this year’s budget was making strides in simplification and reducing complexity. Once rules, statutes, and policies reduce complexity, it can enhance the ease of doing business and boost living standards for the middle class.
COUNTERVIEW: Comes up short
While the budget did rejig the tax slab and increase the standard deduction to ₹75,000, the expectation was for ₹1 lakh. Along with the unchanged slabs in the old regime, there have been mixed reactions among taxpayers. More taxpayers opted for the new regime in FY2024. It reflected a preference for lower tax rates despite fewer deductions and exemptions. For taxpayers with gains from asset holdings and the shortfall of relief measures for the middle class, it’s not good news.
The income tax slabs have undergone some minor cosmetic tinkering and nothing more. The need of the hour was to reduce tax rates for those who earn between ₹20 lakh and ₹ 1 crore a year. They’re the ones who drive consumption. It seems the government continues to be driven by the “suit-boot” refrain from 2014. There should’ve been more tax sensitivity than fiddling with the tax slabs.
Economists have been worried that India is currently in a phase of jobless growth. Over the past decade, the middle class hasn’t received much relief and has paid taxes while earning and spending, even with high inflation. That’s a bad recipe. The middle class largely comprise taxpayers, and individual taxpayers pay more than corporates. This group has realised that they’ve been doing the heavy lifting, and there’s no relief in sight.
Reference Links:
- Understanding India’s evolving middle classes – East Asia Forum
- The Middle Class in India: From 1947 to the Present and Beyond – Association for Asian Studies
- The rise of the Indian middle class – Deccan Herald
- Budget 2024: A progressive approach to growth and welfare – Firstpost
- From ‘Vikas’ to ‘Virasat’, Budget 2024 Treads a Fine Line Between Politics and Economics – News18
- How middle class pays more taxes than corporates, and gets ignored too – India Today
- What the post-Budget middle-class meltdown means for the BJP – India Today
- Budget 2024: The Indian middle class expected more – Hindustan Times
What is your opinion on this?
(Only subscribers can participate in polls)
a) The 2024 Budget has delivered for the middle class.
b) The 2024 Budget hasn’t delivered for the middle class.
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