The middle class in India has long been the backbone of the nation, driving consumption, innovation, and overall economic growth. Under Prime Minister Narendra Modi's leadership, India has witnessed transformative changes that have significantly impacted this demographic. In the last decade, we have moved from a Low Growth, High Inflation Nation to a High Growth, Low Inflation Nation. Currently, we are the only large economy in the world to have High Growth and Low Inflation.

The GDP growth rate consistently outpaced other major economies, with 8.2% growth in FY 2023-24 compared to 7.0% in FY 2022-23. These economic improvements have directly benefited the middle class. Primarily, what the middle class expects from a Budget is more disposable income in hand, Quality jobs for the next generation, and an improved quality of life.

More Disposable Income in Hand Generally, the government tries to increase the middle class's disposable income by controlling inflation or by giving tax relief to the personal income tax category. This budget and government fiscal policies provide relief by both instruments. Inflation management has been crucial, with the Modi government adopting an inflation-targeting regime in 2016.

This approach stabilized and lowered inflation, which has averaged 5% since 2014, never breaching the 8% mark. In June 2024, retail inflation was 5.08%, with core inflation at its lowest in over 12 years, providing further relief to the middle class and enhancing their purchasing power.

In addition, the budget brings significant tax relief for the middle class.FM has rationalized slab rates under the new tax regime and allowed an additional standard deduction of Rs 25,000, effectively making the total standard deductions Rs 75,000 effective from AY 25-26. The new tax regime continues to be the default tax regime of taxation.

These changes increase disposable income in the hands of the middle class to the extent of Rs 17,500 per annum. In other words, after these changes, there will be no tax till income from the Salary of Rs 7.75 Lakh under the new tax regime.

Empowering the Backbone of India

The Union Budget 2024-25, presented by Finance Minister Nirmala Sitharaman, introduces a series of measures aimed at empowering the middle class and ensuring inclusive growth. This budget focuses on employment, skilling, MSMEs, and infrastructure, which are all pivotal for middle-class prosperity. The budget allocates Rs 2 Lakh Crore for education, employment, and skilling, directly benefiting the middle class by facilitating job opportunities for 4.1 crore youth over five years. Schemes like the Employment Linked Incentive provide direct benefits to first-time employees, boosting job creation in the manufacturing sector.

Additionally, a new centrally sponsored skilling scheme will train 20 lakh youth, aligning their skills with industry needs and ensuring the middle class remains competitive in the job market. Under the PM Awas Yojana Urban 2.0, the housing needs of 1 crore urban poor and middle-class families will be addressed with an investment of Rs 10 lakh crore. This will include the central assistance of Rs2.2 lakh crore in the next 5 years.

A provision of interest subsidy to facilitate loans at affordable rates is also envisaged. For small business owners within the middle class, the budget introduces a comprehensive package for MSMEs, including a credit guarantee scheme for machinery and equipment purchases and support during stress periods.

A Brighter Future

The measures outlined in the budget are set to have profound implications for the middle class. Increased employment opportunities, enhanced skilling programs, and support for MSMEs ensure stable incomes and improved living standards.

Affordable housing initiatives make homeownership more accessible to the middle class, and the focus on infrastructure development creates a conducive environment for businesses, fostering economic growth and stability.Let us understand this with the help of an example - The story of a middle-class family. Sachin is a middle-class professional living in Delhi. With the recent changes introduced in the budget, his yearly take-home salary has seen an increase of Rs17,500 due to the new tax benefits.

This increment has allowed Sachin to invest more in his children's education and save for the future. The constant control of inflation also eased his household expenses, making it more affordable for his family to maintain their standard of living. Sachin’s son, Amit, recently graduated and was worried about finding a job.

However, with the government's focus on creating employment opportunities, Amit secured a position in a manufacturing firm that benefits from the Employment Linked Incentive scheme. This job provides Amit with a stable income and gives him the confidence to contribute to the family's finances.

The government's commitment to skilling programs has also allowed Amit to enrol in a training course that enhances his skills, making him more competitive in the job market.

In addition, Sachin's wife, Priya, who runs a small business, has benefited from the support extended to MSMEs. The credit guarantee scheme has enabled her to purchase new machinery, increasing her business's productivity and profitability. The Union Budget 2024-25 is a testament to the government's commitment to fostering inclusive growth and empowering the middle class.

By addressing key areas such as employment, skilling, MSMEs, housing, and infrastructure, the budget paves the way for sustained economic growth and prosperity. As the middle class continues to thrive, it will undoubtedly propel India towards becoming a global economic powerhouse, realizing the vision of a 'Viksit Bharat' in 2047.

(The writer is Professor of Finance. XLRI Xavier School of Management and BJP Leader; views are personal)