Budget and the Middle Class

Unless all sections of the country are included in the process of development, we will never be able to make India a developed nation. — Dr. Ashwani Mahajan

The Budget 2024-25, was presented in the Parliament, as a full budget on 23 July 2024 after the formation of the new government. It was expected that given comfortable revenue position of the government, middle class would be given relief in the income tax. Finance Minister Nirmala Sitharaman, by making changes in various slabs of income tax, did attempted to give maximum relief of Rs 17,500 to all taxpayers. If we assume 2 crore tax payers in new income tax regime, for whom this change is proposed, then its implication on the budget would be nearly Rs 35000 crore. But the benefit of people with income more than Rs 10 lakh, especially the upper-middle class, was also limited to Rs 17,500. Therefore, people with income above Rs 10 lakhs, are complaining that the middle class was generally ignored in the budget.

There is a need to fact check about this complaint, so that it can be understood whether the Finance Minister has actually ignored the middle class in Budget 2024-25. There is a need to understand what the middle class really is? Different agencies in India define the middle class in different ways. National Council for Applied Economic Research (NCAER) includes households earning between Rs 2 and Rs 20 lakh in the middle class. According to NCAER, there are three categories of the middle class, one, the lower-middle class, which includes households earning between Rs 2 and Rs 5 lakh, who are lower middle class; households earning between Rs 5 and Rs 10 lakh will be called middle class and households earning between Rs 10 and Rs 20 lakh will be called upper-middle class. The Reserve Bank of India includes households earning between Rs 3.5 lakh and Rs 17.5 lakh in the middle class. The Government of India includes those households in the economically weaker classes, whose income is less than Rs 8 lakh and define creamy layer, as upper-middle class, as those whose income is more than Rs 12 lakh.

If we look at the data of the Income Tax Department, in 2022-23, a total of 7.4 crore people filed income tax returns in the country, but out of them only 2.24 crore people actually paid income tax. Out of 7.4 crore filing tax returns, 5.8 crore people declared income up to Rs 10 lakh. That is, it can be understood that, of the total number filing returns, 78 percent declared Rs 10 lakh or less. It can be understood why the Finance Minister, while giving income tax exemption, has proposed to give income tax concessions only to those with income less than Rs 10 lakh.

It is well known that budget does not mean only tax, or income tax, so it has to be understood in detail what the Finance Minister has in the budget for the middle class this time? Only then it can be understood what benefits the middle class and other sections of the society, will get from the budget. There has been a practice of assessing the budget, in terms of the benefits given to women by government’s budget. Experts call it Gender Budgeting. On the same lines, we can assess the budget, in terms of benefits from budget accruing to the middle class.

First of all, today the middle class is most worried about the employment of their next generation. In this year’s budget, the government has allocated a large amount for skill development and employment generation and encouragement among the youth. The Finance Minister has announced that the government will pay the first salary to the first time employed youth in the organized sector. This provision is likely to benefit 2.10 crore youths. Apart from this, the contribution for the Employees Provident Fund (EPFO) by the employers in the new recruitment will be provided by the government for 2 years. Various schemes have been announced in the budget, including the scheme to skill 20 lakh youth in five years. Youths from middle class families are likely to benefit more from this provision.

One of the biggest schemes for the youth that has been brought in the budget is the ‘internship scheme’ in 500 big companies. Under this scheme, every youth will be given an amount of Rs 5000 per month and one time benefit of Rs 6000; and 1 crore youth will get benefited from this scheme in 5 years. This scheme can play a big role in skilling the youth and making them employable. For the unemployed youth in the families of crores of middle class households, there can be a huge benefit under all these schemes in this budget.

Secondly, the government has announced Pradhan Mantri Surya Muft Bijli Yojana, under which 1 crore households will get free electricity up to 300 units, who opt for installing solar panel on their roof tops. This scheme will be available to poor and middle class families. For this, loans will be disbursed to buy solar panels, along with subsidy. Through this, the beneficiaries will not have to bear the burden of the cost of installing solar panels.

Thirdly, the government has announced a capital expenditure of Rs 11,11,111 crore in this year’s budget, which will help building infrastructure including road, rail, water and air transport in the country. This will not only make transportation and life easier for the middle class, it will also create employment opportunities and reduce logistics costs, which can make goods and services cheaper in the country.

Fourthly, apart from the government-aided construction of 3 crore houses in villages, one crore houses will also be built in urban areas, which will benefit the lower-middle class, and they will be able to avail the benefits of affordable housing.

Fifth, the way the government has abolished angel tax to promote start-ups, youth of the middle class may benefit.

Sixth, it is also being said that the way the import duties have been reduced, the middle class will also get indirect benefit of the same as they will get cheaper goods.

Seventh, the government has provided a corpus of Rs One lakh crore, from where, interest-free loans will be provided for research and innovation in the next few years, which can be returned in a period of 50 years.

Apart from this, there is a need to assess the benefits to the middle class from the various provisions made in the budget. Only then will we be able to properly assess how much the middle class will benefit from the budget provisions. It has to be understood that we cannot assess how much the middle class has got benefited directly from the budget, only on the basis of tax exemption.

We see that in the interest of social justice, the government collects more tax from the rich and spends it on various government-social welfare schemes. We must also understand that the importance of upliftment of various sections of the society, especially the economically less privileged people, is not only important for social justice, but it is also important for the all-round development of the country. Unless all sections of the country are included in the process of development, we will never be able to make India a developed nation. Not only this, inequalities in the society also promote animosity, which can disturb social fabric and hinder the process of development.              

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