Budget 2023: What Does it Mean for India’s middle class?

Finance Minister Nirmala Sitharaman, who will deliver the Union Budget 2023 on February 1, would be held in high regard by India’s middle class. The Indian middle class, which is regarded as the lifeblood of the nation’s economy, has long been the main force behind that growth.

However, the aspirational middle class’ growth has been severely hampered by growing living expenses, declining incomes, and widespread layoffs across industries. These factors also pose a serious threat to the Indian economy’s expansion in FY24.

The middle class, particularly households earning between Rs 5 and 10 lakh per year, are seen to be suffering the most because they are not even eligible for subsidies and must pay the entire impact of inflation. According to some economists, inflation acts as a kind of tax on the lower and middle classes.

Will the finance minister therefore provide the middle class with some relief? The answer, then, is both yes and no. The government is under pressure to reduce spending as it works to meet its fiscal deficit target for the upcoming year, but knowing that supporting the sizable middle class in its final full budget would be crucial before the general elections in 2024.

The finance minister may start by outlining the government’s strategy for protecting millions of middle-class people from high inflation and declining income.

Creating jobs

The government will be attempting to assist the middle class by aggressively boosting job-oriented sectors such as manufacturing and infrastructure because there will be limited space to implement populist measures like subsidies and significant tax reductions. Increased employment could alleviate some of the pressure on middle class families’ finances.

According to experts, the government may also implement a programme to create urban jobs in order to lessen the impact of recent layoffs on middle-class households.

Crucial Changes to the Tax Code

The government may unveil certain tax relief measures to increase the disposable income of middle-class households and lessen their burden as private spending and household savings decline.

Under the previous income tax system, it is possible to anticipate higher home loan and medical expense deductions.

The new income tax system, however, will be the centre of attention. It is anticipated that it would receive a fresh makeover with lower rates and more flexible tax bands. Other anticipated actions include the implementation of a standard deduction and a higher basic exemption limit of Rs 5 lakh.

The government will continue to strive for the benefit of India’s middle class, according to the finance minister, who recently claimed to understand the pressures they are under. It will now be interesting to watch if Nirmala Sitharaman keeps her word to the middle class.