Budget 2024 takes into account the interests of the middle class

EU Budget 2024-25 – unveiled on 23 March amidst much anticipation July 2024 — It caused quite a stir on social media. Although there is not much consensus, we can draw one conclusion: this budget exceeded expectations.

Amid the clamour over a “new political calculus”, the budget defied speculation by signalling continuity while leaning towards reform.

While it may seem crazy to prioritise sustainable economic growth and fiscal deficit in the era of free-for-all policies, ‘Modi 3.0’ seems to have achieved the impossible while remaining cautious.

Much ado about nothing

But the social media denizens were not convinced by this display of fiscal discipline. Of the various complaints, the all-too-common refrain of the “beleaguered middle class” rang loudest. Social media critics argued that the budget — as conservative as it was — was another example of the government “ignoring” the middle class.

They say this neglect is reflected in the lack of major tax cuts and the increase in tax rates on short-term capital gains (STCG) and long-term capital gains (LTCG) — from 12.5% ​​to 15% and from 15% to 20%, respectively.

In the face of these bitter pills, one might agree with the internet’s belligerents and say that the middle class has been abandoned by everyone — but only if we turn a blind eye to every detail of the budget.

Details like the revised tax brackets under the new tax regime which translates into lower taxation, or details like the increase in the standard tax rate from Rs 50,000 to Rs 75,000, which results in greater tax savings for salaried individuals and pensioners.

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

They would also have to avoid admitting that the abolition of indexation relief has no impact on investors who sell properties to invest in new properties (since LTCG does not apply in such cases; see Section 54 of the Income Tax Act) and instead, it will mainly affect short-term investors in real estate bubbles like those in Mumbai and Delhi.

While it is difficult to determine how many of these two types of investors are considered middle class, it is safe to say that there are significantly more of the former than the latter.

Delicate balance

One might be forgiven for thinking that the budget contains nothing more than what social media agitators have focused on. Nevertheless, a careful examination reveals a three-pronged approach to economic growth: investment, incentives, and diversification.

Consider, for example, the staggering capital expenditure of Rs 11.11 lakh crore — which is no less than 3.4 per cent of the national GDP — earmarked for accelerating large-scale infrastructure development efforts.

Infrastructure is not just about sprawling highways or shiny airports—essential, if easily overlooked—but infrastructure that underpins our economic future. Like the highlighted commitment to facilitate the development of industrial parks in 100 cities, which has the potential to revolutionize the economic landscape—and that’s no exaggeration.

It is easy to forget that the now towering cities of Gurgaon and Noida were once humble villages before industry and much crorepats scattered across their territory were once beneficiaries of similar plans that were put into effect.

But a nationwide industrial push is not all that is on the table. There is also the PM Awas Yojana Urban 2.0, which has received a monumental allocation of Rs 10 lakh crore, aimed at addressing the housing needs of the urban poor and the middle class — yes, the middle class is finally mentioned. Along with this announcement, there also came the promise of interest subsidy to facilitate lending at affordable rates.

Here is our investment. Next, let’s focus on incentives. Having observed the success of production-linked incentives in driving industrial growth, the government decided to repeat the model to expand the labor market.

The budget introduced three such “employment-linked incentive schemes,” one aimed to support first-time workers through a direct transfer of benefits equal to their monthly salary, while two others aimed to stimulate job creation by incentivizing employers for each new hire.

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

In India’s case, this would require a big push towards manufacturing and creating an enabling environment for startups and micro, small and medium enterprises (MSMEs). Production-linked incentives (PLIs) were designed to address the former, and this budget focuses on delivering the latter.

It may be a cliché to say that the SME sector has experienced a number of shocks over the past decade. While the sector has shown remarkable resilience, there are serious gaps to fill. Namely, challenges related to formalisation and access to credit.

To address these issues, the Budget has come up with several initiatives to boost the sector. These initiatives include a credit guarantee scheme, reduction of the turnover threshold for mandatory registration on the TReDS platform from Rs 500 crore to Rs 250 crore, and setting up of e-commerce export hubs in public-private partnership (PPP) mode to enable SMEs and traditional artisans to sell their products internationally.

Penalizing financial prudence

It is indeed interesting that a social media storm has condemned the budget as anti-class. To take the matter further, one only needs to look at some of the other schemes proposed in the budget.

For example, a student loan subsidy program designed specifically for people who have NO availed any other government scheme or internship program which involves placing 1 crore youth as interns in top 500 companies in next five years with internship allowance of Rs 5000 per month and one-time assistance of Rs 6000. Or the initiative of modernization of 1000 ITIs across the country and so on.

Indeed, keywords like “fiscal consolidation” and “macroeconomic stability” tend to provoke anger rather than approval. After all, what do such lofty concepts have to do with the common man? Why must they We pay for it? Such economic solipsism remains largely unchallenged.

The rise and fall of the stock market can just as easily be attributed to the phases of the moon before they are attributed to administrative policy. While the latter may be overlooked or dismissed in favor of more exciting interpretations, its influence is felt all the more.

A cursory glance at stock market trends over the past decade is a sufficient demonstration. The decade-long stock market rally—unprecedented in many ways and enriching for many ordinary people—reflects a kind of market confidence and optimism that can only arise under competent authority.

Amidst several economic shocks and geopolitical crises, the Indian stock market has added around $2 trillion in the last four years, growing to around $5 trillion. To put it in perspective, the stock market added over $1 trillion to its market capitalisation in the first six months of this year.

To call it a “cataclysm” might be an understatement. The middle class has helped fuel the momentum by breaking away from custom and putting its weight—and household savings—behind the market, reaping the rewards.

Unspoken risks are covered by a government guarantee. What’s even more interesting is that even with the increases — so exaggerated 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 taking into account their sensitivity, and maybe even a little too worries about the long-term plan of events.

After all, in the times when khatakhat serves as a slogan, perhaps the government has made a mistake. The Bharatiya Janata Party may have forgotten that prudence in spending taxpayers’ money is not considered an ideal worth implementing in Indian politics.