India’s Finance Minister Nirmala Sitharaman recently unveiled the much-anticipated Budget for 2025 during the Parliament session. Aimed predominantly at the middle class, the proposals include substantial modifications to the income tax structure, stirring discussions across the board.
Sitharaman highlighted, "No income tax would be payable up to income of Rs 12 lakh per annum," effectively liberally altering the tax burden and with it, anticipating the forgoing of ₹1 lakh crore from direct tax revenues. This dramatic reshaping of income tax slabs is intended to invigorate household consumption and savings, especially as segments of society grapple with economic pressures.
President Droupadi Murmu, during her address on the opening day of the Budget session, tied economic progress closely to the middle class, indicating its significance within India's overarching economic framework. “The aspirations of the middle class and the fulfilment of those aspirations are intertwined with our nation’s growth,” she remarked.
Prime Minister Narendra Modi similarly emphasized the pivotal role of the middle class in his remarks, expressing hopes for continued blessings upon them, stating, "I pray Maa Lakshmi continues to bless the poor and middle class of our country and continues to shower her blessings." This rhetoric signals the government’s focus on appeasing voters as the Delhi elections loom.
One of the most sweeping changes announced was the revision of taxable income brackets, where individuals earning up to ₹12 lakh would face no tax obligations. Sitharaman explained the new structure, noting changes to taxable brackets beginning at ₹4 lakh to ₹8 lakh with rates pegged at 5% and scaling upward to 30% for incomes surpassing ₹24 lakh.
This move raises pressing questions about the actual classification of the middle class. Despite extensive dialogue illustrating its importance, there is no consensus on its definition within the Indian socio-economic fabric. Contrasting definitions attach varying income levels to the term, complicate assessment and political strategy. For example, the People Research on India’s Consumer Economy and the National Council of Applied Economic Research provide differing parameters for what constitutes middle-class income.
The discourse extends beyond definitions with India's economic growth trajectories being central to these discussions. Chief Economic Advisor Nageswaran put forth urgent calls for economic reforms emphasizing the need for India to shed excessive regulations to allow businesses to flourish independently and develop national strength. Currently, the Indian economy is projected to strive for 8% growth rate annually if it aims to achieve full development goals by 2047. Unfortunately, many analysts forecast growth at around 6.5% for the coming years, raising concerns about the sustainability of aspirations post-pandemic.
According to Nageswaran, India would struggle to sustain this momentum without addressing fundamental issues, the most pressing being the disparity between corporate profitability and workers' remuneration. With huge profits being recorded by large corporations, the mounting challenge remains of stagnant wages against increasing corporate wealth. He urged for action to counteract this imbalance for the broader economic benefit.
Economic analyst Rathin Roy voiced skepticism, pointing out systemic flaws within the Budget's proposed measures. "It will increase consumption of you and me. It is going to do nothing, absolutely nothing for consumption of the aam aadmi,” Roy asserted, critiquing how the tax relief benefits predominantly cater toward wealthier segments, with the threshold for taxable legibility shifting from 3.5 times to 6 times the per capita income. This alteration implies only the top 5-10% liable for tax, exacerbated by high indirect taxes like Goods and Services Tax (GST) still hitting low-income earners harder.
Yet, amid the polarized views, some experts like JPMorgan’s Sajjid Chinoy praised the Budget as being cautious but aligning with expectations for growth, highlighting its intricacies and potential. The economic outlook encapsulates both optimism and caution, reflecting the complications intrinsic to India’s economic climate.
There’s no doubt Budget 2025 will critically shape the path forward for India’s economy, particularly concerning the middle class—a term burdened with varied interpretations and multi-layered significance. The central question remains whether the measures outlined can stimulate genuine economic uplift for those most affected by policy decisions or if they merely perpetuate existing inequalities.
With aspirations high and fiscal realities pressing, the challenge lies heavily on the government to navigate these expectations effectively, ensuring equitable growth and opportunity for all sectors of society as it strides toward its ambitious goals.