India’s middle class population will have high expectations from Finance Minister Nirmala Sitharaman, who will present the Union Budget 2023 on February 1. The middle class, considered the central artery of the Indian economy, has been driving the country’s world-beating growth for years.
But the rising cost of living, falling income and mass layoffs across industries have significantly dented the growth of the aspirational middle class, and threaten to significantly disrupt the growth of the Indian economy in FY24.
Experts believe that the middle class, especially households earning Rs 5-10 lakh annually, are suffering the most as they do not even qualify for subsidies and have to bear the full brunt of inflation. Many economists have said that inflation is like a tax on the poor and the middle class.
So, will the finance minister grant some relief to the middle class? Well, the answer is both yes and no. While the government knows that supporting the vast middle class population in its last full budget will be important ahead of the general elections in 2024, it remains hard pressed to cut spending as it aims to bring down its fiscal deficit target for next year.
For starters, the finance minister could provide a detailed roadmap of how the government plans to shield millions of middle-class households from high inflation and falling income.
Focus on creating jobs
With limited room to provide populist measures like subsidies and major tax reforms, the government will be looking to help the middle class by aggressively expanding job-oriented sectors such as manufacturing and infrastructure. Higher job growth could indirectly boost the incomes of middle class households and provide some much-needed relief.
Experts believe that the government could also introduce an urban employment generation scheme to reduce the impact of recent layoffs on middle-class households.
Crucial income tax tweaks
With private consumption and household savings declining, the government could announce some tax relief measures to enhance the disposable income of middle class households and reduce their burden.
Higher deductions related to housing loans and healthcare expenses are some announcements that can be expected under the old income tax regime.
But the focus will be on the new income tax regime, which is likely to get a fresh makeover, equipped with lower rates and more flexible tax slabs. An increased basic exemption limit of Rs 5 lakh and introduction of standard deduction are other expected measures.
Recently, the finance minister said she understands the pressures faced by India’s middle class and assured that the government will keep working for their benefit. It now remains to be seen whether Nirmala Sitharaman fulfills her promise to the middle class.