What is Middle Class Of India & How is it Affected by the Budget 2024?

What is Middle Class Of India & How is it Affected by the Budget 2024?

The middle class in India, a diverse and significant population segment, plays a crucial role in the country’s economic and social landscape. Here’s a comprehensive analysis of the Indian middle class, reflecting its rich diversity and varied roles:

Definition and Size

The definition of the middle class in India varies, but it generally includes households with an annual income ranging from ₹5 lakh to ₹30 lakh. According to estimates, the middle class constitutes about 28-35% of the population, translating to roughly 400-500 million people.

Characteristics

1. Income and Consumption:
   • Disposable Income: The middle class has a higher disposable income than the lower-income groups, allowing for discretionary spending on goods, services, and investments.
   • Consumption Patterns: This class drives demand for consumer goods, housing, automobiles, and technology. Their spending patterns significantly influence market trends and economic policies.
2. Education and Employment:
   • Education: Many middle-class people are well-educated and have higher literacy levels and professional qualifications.
   • Employment: They are predominantly employed in white-collar jobs, including government services, IT, finance, healthcare, and education sectors.
3. Urban vs. Rural:
   • Urban Middle Class: Predominantly found in urban areas, with access to better infrastructure, healthcare, and education.
   • Rural Middle Class: Smaller but growing, often involved in agriculture, small businesses, and local services.

Economic Impact

1. Consumption Engine: The middle class is a significant driver of economic growth by consuming goods and services.
2. Savings and Investments: This group contributes significantly to national savings and investments, participating in financial markets, real estate, and retirement plans.

Challenges

1. Income Inequality: Despite growth, there are disparities within the middle class, with significant income differences between this group’s lower and upper segments.
2. Cost of Living: Rising living costs, especially in urban areas, impact their disposable income and savings.
3. Job Security: Economic slowdowns and automation threaten job security for middle-class professionals.

Social Impact

1. Education and Health: The middle class prioritizes quality education and healthcare, influencing improvements in these sectors.
2. Political Influence: They are a crucial voter base, often influencing policy decisions and governance through their preferences and demands.

Despite some positive expectations, the recent Union Budget of India for 2024 has negatively impacted the middle class. Here are the key points:

1. Lack of Major Tax Relief: While there were hopes for significant tax relief measures, the budget needed substantial changes to benefit the middle class directly. Although the standard deduction was increased by 50% to ₹75,000 under the new tax regime, this change may not suffice for many in the middle class who might still be using the old tax regime, which did not see any changes.
2. Increased Capital Gains Taxes: The government raised the short-term capital gains tax on certain financial assets from 15% to 20% and the long-term capital gains tax from 10% to 12.5%. These changes are seen as measures that may dissuade middle-class investors from participating in the stock market, potentially reducing their investment returns​and causing concern.
3. No Major Adjustments in Income Tax Slabs: The income tax slabs saw minor adjustments under the new tax regime, but the overall impact on middle-class taxpayers was limited. The new regime’s benefits might not be enough to offset the lack of broader relief measures expected by many, and we understand the concerns this may raise.
4. Focus on Broader Economic Goals: The budget emphasized growth and reforms to promote inclusive economic growth and fiscal consolidation. While these measures are crucial for the overall economy, they did not translate into immediate, tangible benefits for the middle class.

In summary, while the budget included some measures to improve the tax system and promote economic growth, the middle class still needed the significant tax relief many hoped for, which disappointed this demographic.