Don't Let The Outrage Deceive You: Budget 2024 Took Care Of Middle Class Interests

The Union Budget 2024-25 — unveiled amidst much anticipation on 23 July 2024 — has caused quite a stir on social media. Although there is little consensus to be had, we may conclude one thing: this budget has defied expectations.

In the midst of the clamour over the ‘new political calculus’, the budget contradicted all speculation through signalling continuity while nudging towards reforms.

Granted that prioritising sustainable growth and the fiscal deficit during the reign of freebie politics may smack of madness, ‘Modi 3.0’ seems to have pulled off the impossible by erring on the side of caution.

 Much Ado About Nothing

Social media denizens, however, were not won over by this show of fiscal discipline. Among various complaints, the all-too-common refrain of the ‘beleaguered middle class’ rang the loudest. Social media critics claimed that the Budget — as conservative as it was — was yet another example of the government ‘ignoring’ the middle class.

This neglect, they say, manifests in the lack of major tax cuts and the increases in short-term capital gains (STCG) and long-term capital gains (LTCG) tax rates — from 12.5 per cent to 15 per cent and from 15 per cent to 20 per cent, respectively.

In the face of these bitter pills, one may be moved to agree with Internet belligerents and declare the middle class to be forsaken by all — but only if one were to overlook every other detail from the budget.

Details such as the revised tax slabs under the new tax regime that translate to lower taxation, or details such as the hike in standard seduction from Rs 50,000 to Rs 75,000 that results in more tax savings for the salaried and pensioner classes.

Now some may retort by pointing to the removal of the indexation benefit on the sale of property. But they conveniently forget that the removal of the indexation benefit was accompanied by a reduction in the LTCG tax rate on the sale of property from 20 per cent to 12.5 per cent.

They would also have to avoid acknowledging how the removal of the indexation benefit has no effect on investors who sell property to reinvest in a new property (as LTCG is not applicable in such cases; refer to Section 54 of the Income Tax Act), mainly impacting short-term investors in real estate market bubbles such as Mumbai and Delhi instead.

While it may be hard to deduce how many of these two types of investors qualify as middle class, it is safe to say that the former far outnumber the latter.

 A Delicate Balance

One may be forgiven for believing that the budget contains little else besides what social media agitators have chosen to fixate on. Nonetheless, a careful study reveals a three-pronged approach to economic growth: investment, incentivisation and diversification.

Consider, for instance, the staggering capital expenditure allocation of Rs 11.11 lakh crore — accounting for no less than 3.4 per cent of the national GDP — to accelerate the drive for large-scale infrastructure development.

Infrastructure not merely restricted to sprawling expressways or shiny airports — essential albeit easy to gloss over — but infrastructure that lays the foundation for our economic future. Such as the underlined commitment to facilitate the development of industrial parks in 100 cities which has the potential to revolutionise the economic landscape — and that is no exaggeration.

It is easy to forget that the now towering cities of Gurgaon and Noida were once humble hamlets prior to the arrival of the industrial engine and the many crorepatis dotting their terrain were once beneficiaries of similar plans set in motion.  

 But a nationwide industrial push is not all that is on the table. There is also the PM Awas Yojana Urban 2.0, which received a monumental allocation of Rs 10 lakh crore, directed at addressing the housing needs of the urban poor and middle class — yes, the middle class find mention after all. With that announcement, there was also the promise of interest subsidies to facilitate loans at affordable rates.

Here, we have our investment. Next, let us focus on incentives. Observing the achievements of production-linked incentives in propelling industrial growth, the government has decided to replicate the model to expand the job market.

Three such “employment linked incentive” schemes were introduced in the Budget. One aimed at supporting first-time employees through a direct benefit transfer amounting to their one-month salary, and two others aimed at stimulating job creation by incentivising employers for every new hire.

With investment and incentives in place, we may turn our attention to diversification. But what does diversification entail? Simply put, it is the process of shifting an economy away from a single source or a few sectors toward multiple sources from a growing range of sectors.

In the case of India, this would call for a major thrust to manufacturing and creating a conducive environment for startups and micro, small and medium enterprises (MSMEs). Production linked incentives (PLIs) were crafted to tackle the first, and this budget focuses on realising the second.

It is perhaps trite to say that the MSME sector has suffered multiple shocks over the past decade. Although the sector has shown remarkable resilience, there are major gaps to be filled. Namely, the challenges in formalisation and access to credit.

In an effort to resolve these issues, the budget put forth several initiatives to spur the sector. These initiatives include a credit guarantee scheme, a reduction in turnover threshold for mandatory enrolment with the TReDS platform from Rs 500 crore to Rs 250 crore and establishing e-commerce export hubs in public private partnership (PPP) mode to enable MSMEs and traditional artisans sell their products internationally.

Punishing Financial Prudence

It is indeed curious, then, when the social media storm condemned the budget as anti-middle class. To push the point further, one may only look at some of the other schemes proposed in the budget.

Such as the student loan subsidy scheme specifically for individuals who have not benefited from any other government scheme, or the internship scheme which involves 1 crore youth being placed as interns in 500 top companies over the next five years with an internship allowance of Rs 5,000 per month and a one-time assistance of Rs 6,000. Or the initiative to upgrade 1,000 ITIs across the country, and so on.

Indeed, keywords such as “fiscal consolidation” and “macroeconomic stability” are more likely to elicit ire than approval. At the end of the day, what do such high-falutin concepts have to do with the common man? Why must we pay for it? Such economic solipsism goes largely unchallenged.

The rallies and dips of the stock market may as well be attributed to phases of the Moon before they are attributed to administrative policy. Although the latter may be unacknowledged or passed over in favour of more exciting interpretations, its impact is felt all the more.

A cursory look at stock market trends over the last decade is demonstration enough. The decade-long rally of the stock market — unprecedented in many ways and which has enriched many a common man — reflects a sort of market confidence and optimism that can only be engendered under a competent authority.

In the backdrop of several economic shocks and geopolitical crises, the Indian stock market added around $2 trillion in the last four years, growing to around $5 trillion. To put things into perspective further, the stock market added more than $1 trillion to its market capitalisation over a period of six months this year.

To call this “breakneck” may be an understatement. The middle class have added to this momentum by breaking away from custom and putting their weight — and household savings — behind the market, reaping rewards.

The untold risk is underwritten by the government. What is even more interesting is that even with the hikes — as magnified as they were by social media commentators — India has one of the lowest capital gains tax rates in the world.

In fact, some may argue that this budget is perhaps too focused on the middle class, too accommodating of their sensitivities, and maybe even a bit too bothered about the long-term scheme of things.

After all, in an era where khatakhat serves as a slogan, perhaps the government has taken a misstep. The Bharatiya Janata Party may have forgotten that prudence with taxpayer money is not considered to be an ideal worth implementing in Indian politics.