Why is it in the news ?
1. Budget of FY 25-26 gave concessions to the middle class by alleviating the tax burden upon them. The finance minister raised the income tax exemption threshold from ₹7 lakh to ₹12 lakh per annum. The inclusion of ₹75000 as standard deduction alleviates the tax free income limit to ₹12.75 lakh. Thus, those taxpayers who are earning ₹25 lakh annually can save up to ₹1.1 lakh, individuals earning ₹10 lakh can save ₹50 thousand and individuals earning ₹15 lakh can save ₹75 thousand.
The new tax slabs would give the following benefit to the people
The tax concession caused a revenue loss of approximately ₹1 lakh crore to the government. However, the government expects that the tax reduction would boost household consumption and improve economic growth by creating aggregate demand in the economy. The government was forced to give concessions to the middle class because according to RBI data, the net household savings as percentage of GDP was at the lowest level in the last 50 years. Secondly, the mounting unsecured loans have pushed net savings to a low level, leaving families with less disposable income. Elevated food inflation, high interest rates and shrinking discretionary income have made it difficult for the middle class to maintain their previous spending levels.
Who is middle class in India ?
1. According to the People Research on India’s Consumer Economy (PRICE), the middle class consists of individuals having annual income between ₹5 lakh to 30 lakh.
2. According to NCAER (Council for Applied Economic Research), the middle class in India are those whose annual earning is between ₹2 lakh to 10 lakh.
3. According to the World Bank, individuals earning between $10 and $20 per day (₹313200-522000)are in the middle class.
4. According to Pew Research Centre, individuals earning between $10 to $20 per day can be put under middle class.
5.Apart from income criteria, the middle class can be defined also on the basis of occupation. It includes salaried professionals, government employees, small business owners and skilled workers.
Changing contours of middle class in India
1. The middle class now represents 31% of India’s population of 1.40 billion. It is projected to hit 38% by 2031 and 60% by 2047. Thus, by the middle of this century India is projected to have a middle class population of around 1 billion.
2. During the British Rule, a small number of middle class arose on account of industrialisation in India. They were professionals, business managers, lawyers, doctors, bankers, teachers etc.
3. After independence, the middle class was largely created by the public sector undertaking. However, by 1995, the organised private sector became also powerful employing 80.6 lakh while the public sector employed 194.7 lakh. Before the year 2000, public sector undertakings and railways had a predominant share in employment but after 2011-12, the trend shifted towards IT companies. Now they employ more than railways, public sector undertakings and defence. Similarly, the private banks also surpassed in 2023-24 the scheduled commercial banks in matters of employment. Thus, IT, finance, accountancy, legal, health, hospitality, tourism, transportation, logistics, aviation, media, advertising, sports, entertainment, real estate and retail services led to the growth of the middle class in India. The middle class has now become all pervasive. It has now spread even to rural areas because of the rising incomes of farmers and individuals living in villages. The new middle class arose because of the exponential growth in the services sector. They are employed more in IT, MNCs, and the Gig economy. They have multiple sources of income. They are highly entrepreneurial and want to launch a startup to get self employment instead depending upon government jobs. However, since the Indian economy did not experience structural transformation like in China, the middle class rose more in the services sector. The limited growth of manufacturing and agriculture sectors put a limit on the growth of the middle class in the primary and secondary sectors. Even in the services sector, the growth of the middle class is limited because of insecurity of job and low paid salaries to workers employed in the unorganised sector which constitute 94% of the total employment in India. Similarly, India witnessed huge growth of Gig workers in companies like Zomato, Uber, Ola, Flipkart, Amazon. But because of their insecurity of job and low paid salaries, these sectors put a break upon the growth of the middle class in India.
Problems of middle class
1. Although the middle class in India produces half of the national income, it is being confronted with several problems. These are :
Wages are not increasing in proportion to the rising inflation.
There is huge competition for getting government jobs. Thousands of candidates apply for the high salaried jobs for a few posts, showing acute unemployment among the middle class in India.
Because of the advent of artificial intelligence and automation, most of the managerial posts in the companies are disappearing.
Because of the digital platform, the Gig economy is rising. But Gig workers have low paid salaries and insecurity of tenures, putting a break upon the growth of the middle class.
High cost of education and healthcare further reduce the disposable income of the middle class.
Skyrocketing property prices makes it difficult for the middle class to own houses in the urban centres.
Increasing expenses on account of rising cost of diesel and petrol have put a break upon their mobility.
Long hours of work in banking, IT and corporates have strained their physical and mental health. Work pressure leaves little time for their personal upkeep and prevents them from leading a good family life.
Prospects of middle class
1.The prospects of the middle class in India in the coming year are very bright.
2. It is expected that by 2050, the population of the middle class would go to one billion. Thus, it would have more political clout than before.
3. With the increasing disposable income , the middle class would be investing more in mutual funds stocks and crypto currencies.
4. Due to the government's efforts to launch a smart cities mission, the middle class will find affordable housing facilities.
5. The increased income of the middle class would further lead to the growth of real estate, automobiles and consumer goods.
6. With the increasing population of the middle class, there would be a shift from blue colour jobs to white colour jobs in the sectors like E-commerce, IT, Finance and Health sector.
7. The digitalisation of the economy would further boost the expansion of the Gig economy, E-learning and skilling. These new avenues would further boost the growth of the middle class in the country.
8. With the higher disposable income, the new middle class would venture start-ups more vigorously.
9. The National Manufacturing Mission initiated by the government would further broaden the base of the middle class in the sectors of manufacturing, construction and transportation.
10. The expansion of the Green Revolution in Eastern India by the injection of new technologies would further raise the income level of farmers and individuals living in rural areas. This would further expand the base of the middle class in the agricultural sector. Dhan Dhanya Krishi Yojana initiated in the budget 2025-26 would further boost the production and productivity in the 100 low productivity districts in India, increasing the income of individuals living in rural areas. This would further broaden the base of the middle class not only in the urban centres but in rural areas also.
Conclusion
1. The Indian middle class is an aspirational class. With the increasing income, digitalisation, urbanisation, transformation in agricultural and industrial sectors, the middle class is going to become the most powerful class and the engine of growth of the Indian economy. It is hoped that with the growth of the middle class, Indian democracy will further strengthen.
2. The rising middle class would be able to surpass the US by 2050 in nominal GDP, becoming the second largest economy of the world after China. Thus, the future of India lies with the growth and aspirations of the middle class.
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