What the middle class can expect in the forthcoming budget
In the past several decades, India’s middle class has grown exponentially. A 2019 World Economic Forum study predicted that by 2030, India would move from being an economy led by the bottom of the pyramid to one led by the middle class. Nearly 80% of households in 2030 will be middle-income, up from about 50% today. In addition, the middle class will drive 75% of consumer spending in 2030.
An analysis of the Narendra Modi government’s budgets proves that it has always been pro-middle class. Since coming to power in 2014, the Bharatiya Janata Party (BJP) government has been working hard to improve the standard of living of the middle class. Take, for example, the passage of the Real Estate Regulatory Authority Act. It has empowered the real estate buyer, mainly the middle class. The Credit Linked Subsidy Scheme is helping the government implement its housing-for-all plans. The UDAN scheme has made air travel accessible to even lower mid-income households.
The Ayushman Bharat Yojna has reached 500 million people, covering a large chunk of the middle class. For the first time in their lives, many have got insurance. A large segment of the enterprising middle class is engaged in the micro, small and medium enterprises segment, the largest employer in India. The Modi government has implemented several schemes to enhance this segment’s quality of life and business. For example, loans worth ₹15 lakh crore have been distributed. The government has also implemented the Goods and Services Tax (GST) and rationalised GST rates to ease the burden of the middle class.
The BJP government has also undertaken reforms to benefit low- and middle-income categories, including the Jan Dhan Yojana and the promotion of digitisation. Further, it rationalised taxation for the middle-income segment, providing them the option to choose a taxation scheme.
Also, a standard deduction of ₹50,000 per annum and tax benefit for contribution up to ₹50,000 per annum to the National Pension scheme has been introduced.
The government has been improving infrastructure, keeping inflation low, and setting up new educational institutions for higher studies and new medical colleges. This will benefit the middle class. While it has been criticised for the high auto fuel duties, this is a legacy of the previous governments. They did not adequately invest in reducing India’s energy dependence. Understanding the pain of the middle class and balancing the fiscal needs, the government has reduced auto fuel duties and increased the mix of ethanol in fuel to up to 20% to reduce the import of crude oil.
However, the ongoing coronavirus pandemic has disrupted the upwardly mobile trend of the middle class, with the Omicron variant further eroding consumer confidence. As a result, discretionary expenses have been curtailed. That is why the last budget was for the middle class. Finance minister Nirmala Sitharaman was mindful of the raging argument at the time: Spend heavily on infrastructure and social sectors or put more money in the pockets of the consumer. She did both.
The finance minister had to give a helping hand to the corporate sector too. But much to the relief of the middle class, the minister abolished the dividend distribution tax since it amounted to double taxation. During the height of the pandemic, the government announced a big relief package for MSME.
I am sure the trend of looking after the middle class will continue in this budget.
Syed Zafar Islam is an MP, national spokesperson of the BJP, and former managing director, Deutsche Bank, India The views expressed are personal