Favouring Middle Class
By Dhurjati Mukherjee
Most governments have been favouring the middle class, and the present dispensation too has done so in the recent budget. However, it needs to be pointed out that this class is heterogeneous, classified by different occupations, education and income levels. The most important thing that needs to be understood is that the middle class cannot be considered as one unit as there is a wide difference in the income levels of the upper section and the lower section of this group.
It is believed that the middle class represents a sizable consumer market for both domestic and global businesses. The economic potential of the middle class only became a major phenomenon in the 21st century when it started to attract attention for its potential to drive global consumption. India’s contemporary middle class is more multi-dimensional with economic growth since the 2000s spawning the formation of multiple middle classes — an ‘old’ or established middle class and an emerging ‘new’ middle class, a section of which are very much near to the rich.
A section of this class also faces challenges such as increasing joblessness, underemployment, business failures and potential social unrest. Delving into the past, India’s middle class first emerged in the early 19th century, when the British policies gave rise to a small group of educated, upper caste, English-speaking Indian elite.
According to rough estimates, just 6.6 crore Indians are middle class today. Most Indians earning $3-10 dollars a day may fit this broad profile. Well known economist, Thomas Piketty and his Indian collaborators, recently labelled this group as the middle 40 per cent, those between the top 10 per cent and the bottom 50 per cent in income terms. But the 40 per cent may be divided by the upper middle class constituting around 12 per cent and the rest belonging to the lower middle class.
The wide variation of income within India’s middle class yields a substantial diversity in spending patterns. The lower rungs of the middle class spend much of their income on private healthcare and education, essential consumables but very few have money left for purchase of assets such as motorbikes and basic household appliances. However, it is only the upper rung that can afford to spend a part of their income not only on private healthcare and quality education but also discretionary goods, entertainment, property and personal services. The upper middle class is more likely to own assets such as cars, computers, air conditioners and washing machines.
The recent justification of raising the income limit to Rs 12 lakh from the next financial year – which, in effect, comes to Rs 12.75 lakh (Rs 75,000 being standard deduction) — to enhance consumption expenditure may not, however, be applicable to the whole group but to only the upper middle-income sections. A section of economists is of the opinion that this measure may not help in invigorating the economy as the reduced tax collection may hamper developmental expenditure, which could have improved the conditions of the lower echelons of society.
A person earning over Rs 1 lakh per month cannot be out of the tax net as, in reality, his or her actual income may be much more. The other income, specially in the case of doctors, is by cash which is not shown in the Income Tax file. In a country like India, where developmental expenditure is huge, revenue generation must be boosted up. But it is unfortunate that there is no super rich tax in India, as suggested by agencies such as Oxfam, or an inheritance tax, which is there is most countries of the world.
It needs to be pointed out here that the financial crunch has engulfed the states which have very little expenditure left for developmental purposes. With the new tax regime, estimates varying between Rs 2 to 3 lakh crore would be lost as around a huge number of people will not be paying taxes. Thus, the share of revenue for the states would further decline, leading to huge curtailment of development expenditure.
Favouring the middle class has been a tenet with political parties and politicians, who must adapt to the old vote banks of caste and religion into micro-identities and coalesce into unpredictable social formations. Keeping in view the total middle class, there is a tendency to ensure all sorts of favour to this section. Though it would not benefit a big number, the 8th Pay Commission would further increase that pay scales of Central government employees and put pressure on the state governments to revise the pay structure of their employees.
This widens the income inequality between the urban and the rural populations – government employees, on the one hand and unorganised sector workers, farmers and small shop owners, on the other. The chances of a hike in the minimum wage for farmers are remote and also a revision in the commodity prices so that big farmers may have enough to pay their farmhands. Economists have predicted that farmers in agri-based economies like India have for long been subsidising the urban middle class.
Note that in different parts of Central India, soybeans are presently selling at Rs 3800-Rs 4000 per quintal, way below its minimum support price of Rs 4892 per quintal, pushing farmers’ incomes significantly down. In fact, soybean prices are what they were in 2014 whereas the salary of a middle-class salaried person has increased by around 25 per cent at the least. No wonder then that outstanding crop loan of farmers stood at nearly Rs 35 lakh crore in the country as of March 2024 with Maharashtra leading with over Rs 7 lakh crore.
In view of the policies of pampering the middle-income sections, the economically weaker sections and low-income groups are being left behind and do not gain in any way. Even with rising costs, a big percentage of the middle class whose annual income is around Rs 5-6 lakh a year also do not benefit in any way.
If infrastructure development needs to be intensified, resource generation must be geared in a bigger way. It is strange why the government does not want to impose a one per cent tax on the super-rich, say for funding rural schools and health centres, which are in a dilapidated condition, and transferring the entire amount to say 40 to 50 schools and health centres in every state. Added to this, the incomes of professionals like doctors, engineers and architects, not to speak of developers and builders should be strictly monitored and, if necessary, a special cell should be created in the IT department. A clearer picture would help the government to make an informed decision and refrain from going all out to woo the voter. — INFA