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For Middle Class, Is The Glass Half Full Or Half Empty?
The Union Budget 2025 offers significant tax relief for the middle class, with revamped tax slabs and higher rebates boosting disposable incomes. However, concerns persist over high inflation, slowing growth, and limited fiscal stimulus. While urban consumption may rise, the budget’s focus on supply-side measures may not fully revive demand.
By Rajesh Mahapatra
Rajesh Mahapatra, ex-Editor of PTI, has deep experience in political and economic journalism, shaping media coverage of key events.
February 1, 2025 at 10:49 AM IST
When Prime Minister Narendra Modi on Friday sought “special blessings” of Goddess Laxmi for the “middle class”, he had raised hopes of income tax relief in Union Budget 2025. And on Saturday, Finance Minister Nirmala Sitharaman didn't disappoint.
Unveiling the budget proposals, Sitharaman significantly rejigged the tax slabs and raised tax rebates available to individuals in lower income groups so that income tax payers could benefit up to ₹110,000 annually if they opt for the new tax regime.
| Income | Tax on Slabs and rates |
Benefit of Rate/Slab |
Rebate benefit | Total Benefit | Tax after rebate Benefit |
|
| Present | Proposed | Full upto ₹ 12,00,000 | ||||
| 8,00,000 | 30,000 | 20,000 | 10,000 | 20,000 | 30,000 |
-- |
| 9,00,000 | 40,000 | 30,000 | 10,000 | 30,000 | 40,000 | -- |
| 10,00,000 | 50,000 | 40,000 | 10,000 | 40,000 | 50,000 | -- |
| 11,00,000 | 65,000 | 50,000 | 15,000 | 50,000 | 65,000 | -- |
| 12,00,000 | 80,000 | 60,000 | 20,000 | 60,000 | 80,000 | -- |
| 16,00,000 | 1,70,000 | 1,20,000 | 50,000 | -- | 50,000 | 1,20,000 |
| 20,00,000 | 2,90,000 | 2,00,000 | 90,000 | -- | 90,000 | 2,00,000 |
| 24,00,000 | 4,10,000 | 3,00,000 | 1,10,000 | -- | 1,10,000 | 3,00,000 |
| 50,00,000 | 11,90,000 | 10,80,000 | 1,10,000 | -- | 1,10,000 | 10,80,000 |
The proposals also meant that if an individual’s income was under ₹1.2 million, she or he would have to pay no tax, by availing up to ₹60,000 in tax exemption. Until now, this threshold was set at ₹700,000, wherein the marginal tax exemption limit was capped at ₹25,000.
The announcement, which the finance minister saved until the end of her budget speech, is widely expected to spur consumption, especially in urban areas, as the disposable income of an individual taxpayer increases between ₹6,000 and ₹9,000 per month. The numbers could just double if one takes into account a double-income middle-class family.
And that may boost consumption spending, especially discretionary spending. Which is why, shares of FMCG companies, automobile firms and retailers rose sharply following Sitharaman’s announcement.
At 1400 IST, shares of retail giant Trent were up 7%, Maruti Suzuki India was up 5%, Hero Motors 2%, while FMCG majors such as Hindustan Unilever, ITC Ltd and Britannia Industries rose more than 4%.
That said, it may be premature to suggest the tax giveaways in the budget would be enough to reverse the slowdown in urban consumption in recent times, which has been cited as a major cause for the slower growth of the broader economy.
High Inflation, Slowing Growth
Even as the middle class gets more money to keep post-taxation, that may be offset by high inflation and rising transactional expenses it has to cope with. More importantly, a bigger concern of the middle class relates to slowing economic growth, which, in turn, affects the prospects of jobs.
Sitharaman’s budget proposals didn’t indicate any plans on the part of the government to pump prime the economy, which is what India needs to revive the consumption story and thus revive growth.
By pegging the fiscal deficit at 4.4% of GDP in 2025-26 compared with the revised estimate at 4.8% in the current fiscal, the finance minister has indicated that the government has no intent of loosening its purse strings. Capital expenditure has been budgeted at ₹11.21 lakh crore, marginally up from ₹11.11 lakh crore in 2024-25. Similarly, revenue expenditure is budgeted at ₹39.44 lakh crore, moderately up by 6.3% from what was budgeted for 2024-25.
A closer look at the composition of expenditure budget, reveals the budget hasn’t provided much of a boost to rural consumption. Allocations for MGNREGS – the government’s flagship rural employment scheme – remains the same, while there have been massive shortfalls in utilising the allocations made for Prime Minister Awas Yojana and Jal Jeevan Mission – ₹32,426 crore (revised estimate) vs ₹54,500 crore (budget estimate) and ₹22,694 crore (RE) vs ₹70,163 crore (BE).
Over Reliance on Supply-side Recipe
The budget is never expected to provide all solutions to challenges confronting the economy. Nonetheless, it is an important window through which the government articulates its economic philosophy and broader policy approach.
Sitharaman’s budgetary proposals didn’t propose any change in the government’s previous approach of leaning too much on supply-side measures to revive growth. The government has been spending big on capital projects for the past several years, hoping the private sector will follow suit and step up investment. But that hasn’t happened, because the private sector remains skeptical of demand.
Similarly, the government has repeatedly brought measures to encourage farmers, small businesses and entrepreneurs with easy access to credit and interest subventions, but these too haven’t yielded much.
That is why, many economists have been urging the finance minister to be liberal on the fiscal front. Given the state of headline fiscal numbers, Sitharaman could have risked a higher fiscal deficit in 2025-26 and set aside more money to revive consumption, both urban and rural.
She seems to have given it a miss.
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