Using A Tax Prod To Goad The Great Indian Middle Class

While the government wants taxpayers to recharge sluggish consumption, one can't be sure if all the middle class segments will use the extra money in the same manner

- HARISH BIJOOR

February 1 was a firecracker moment for the great Indian middle class. In her record 8th budget as finance minister, Nirmala Sitharaman announced a whole set of new income tax slabs, and a set of new tax rates that has India salivating. The direct tax regime has never had it so bad and the taxpayer in India has never had it as good. The government is proposing to sacrifice as much as ₹1,00,000 crore in direct tax revenues, which would leave that much more money in the hand of the middle class.

This budget seems to signal a government recognition of the angst of the middle class, a segment represented by 570 million people, 38 percent of the population. While the bottom of the pyramid is blessed by government subsidies and freebies of every kind, the middle has been expressing deep angst. With jobs scarce, real-income growth next to negligible, inflation at 6 percent and the price of essential commodities skyrocketing, the bite was felt. The government stepped in and PM Narendra Modi spoke.

As the din around the "fire-cracker moment" settles, time to understand what the budget is actually trying to achieve.

First principles first. The clear first intent is to kickstart the sluggish consumption. The simple idea is to let there be more money in the hands of the spending class. This money will move into consumption. Consumption will then drive production, which will help capacity expansion by the private sector, and this in turn will create more jobs. More jobs mean more money to get the virtuous cycle of consumption into an overdrive. India needs to grow at least at 8 percent for several years to be a middle-income economy by 2030. The goal is clear.