By Shishir Tripathi
Finance Minister Arun Jaitley started his 2014 budget speech with a palpable concern towards the ‘neo middle class’.
He said: “The people of India have decisively voted for a change. The verdict represents the exasperation of the people with the status-quo. India unhesitatingly desires to grow. Those living below the poverty line are anxious to free themselves from the curse of poverty. Those who have got an opportunity to emerge from the difficult challenges have become aspirational. They now want to be a part of the neo middle class. Their next generation has the hunger to use the opportunity that society provides for them.”
Talking about smart cities, Jaitley added: “A neo middle class is emerging which has the aspiration of better living standards. Unless new cities are developed to accommodate the burgeoning number of people, the existing cities would soon become unlivable.”
Presenting his third budget on Monday, the Finance minister spoke about nitty-gritty of the economy and his government’s agenda to 'transform India'. Talking about his budget proposals “built on this transformative agenda” he elaborated on nine distinct pillars, of which, the first two were:
(i) Agriculture and Farmers' Welfare: with focus on doubling farmers' income in five years;
(ii) Rural Sector: with emphasis on rural employment and infrastructure”
Conspicuously missing was the expression ‘neo middle class’. This budget marks a drastic shift in the NDA government’s approach. The aspirational, emerging middle class, which was hailed as the symbol of the new era, seems to have been replaced by farmers, the catchword of the old India. This assertion is not to juxtapose the two classes but to assert the point that the BJP has left the neo middle class disappointed.
For Shubham Kumar, a physical training (PT) teacher in a government school in eastern Uttar Pradesh, the current budget has both, a reason for disappointment and applause. While Shubham and his three brothers are a part of mammoth service industry, their parents still depend upon farming as their main source of income, a sector which has received much needed attention.
“I am happy for the fact that the government is thinking about farmers. But what about us? I was expecting that they will make some changes in the income tax slabs. Currently people like us are being taxed when we somehow try to make the ends meet”.
Shubham is part of the ‘neo middle class’ a class as defined by BJP, consisting of those who have risen from the category of the poor but are yet to stabilise in the middle class and need hand-holding.
This class is not resenting the attention that the agriculture sector has got. Most of them have strong links with the agricultural sector, which makes them sceptical of the announcements made for the betterment of farmers and rural population.
While the attention given to the farm sector should be applauded, some old questions remain. Will these proposals help in the overhaul of agriculture sector? Consider this: In Budget 2016, Mahatma Gandhi National Rural Employment Guarantee (MGNREGA) Scheme has been allocated Rs. 38,500 crore ahead of important elections in five states this year. But the same scheme has been the focal point of criticism for massive scale of corruption it caused and the unproductive assets it created.
The origin of the word new middle class can be traced back to the manifesto of 2012 assembly elections of Gujarat. During the 2014 Lok Sabha elections too BJP promised to “meet the aspirations” of this neo middle class, saying they need “proactive hand-holding”.
Smart cities, start-ups were the buzzwords that dominated the post-budget discussion in 2014. It is farms and farmers now.
This has to a greater extent made the upper middle class a resenting lot: Not only was there no relaxation on tax slabs or exemption limits, they were hit with an increase in surcharge, from 12% to 15%, on tax on incomes above Rs 1 crore. Also, those with dividend earnings of over Rs 10 lakh per annum will now have to pay tax on it.
Another move that has evoked strong opposition from service class who constitute major chunk of middle-income group is the proposal to tax 60 per cent of the corpus of the provident fund at the time of withdrawal, on prospective basis.
Nirupama Soundararajan, Senior Fellow, Pahle India Foundation talking about the concerns of middle class says, “That the middle class feels cheated is expected, but specifically on what count? The middle class has resented four announcements. First, clothes and cars will cost more. Second, the tax slab has not been raised, in fact there is no new tax break. Third, EPF and PPF contributions from 1 April will not be taxed at 60 per cent upon withdrawal of the corpus. Fourth, the short duration amnesty scheme offered to get back domestic black money is not fair to the middle class tax paying citizen. Personally, of all the four, the most justified resentment is the last, albeit, it is not just unfair to middle class, but to any tax paying citizen of the country.
“On the increase in prices, the hike in clothes and cars as a percentage of their cost may not prove to be very high. Besides, with e-commerce, the general cost of these commodities has seen a significant reduction in prices. On the change in taxation of EPF and PPF, contrary to public outrage, I believe this is an excellent idea. The budget states that our citizens must move towards a society that adopts pensions. Today, most of middle class tend to withdraw the corpus when possible instead of using it to obtain a monthly income of retirement. While it will still be possible to withdraw the entire corpus a tax component on 60 per cent may well be a healthy deterrent.
She adds, “On no tax breaks, while it is unfortunate, the government does not have much choice. As the FM has courageously stuck to his fiscal targets of 3.5 per cent of GDP, and with revenue deficit coming down from 2.8 per cent to 2.5 per cent, any kind of tax break for the middle class seems difficult. What the budget has failed to address and is of at most importance is on how to increase the tax net. Until calculated measures are undertaken in this direction, any kind of tax break would be mostly temporary and not something that is will be quite satisfactory to the middle class. The current FM has stated in the past that he is keen to increase the tax slab to INR 5 lakhs, but if this has to happen, the tax net in India will have to be flung far and wide for a better catch.”
While a fact cannot be denied that prudent economic criterion are behind many of the government initiatives announced in the budget, the fact remains that the nuances of micro and macroeconomics is beyond the comprehension of the people in general and they are feeling disappointed.
The Finance Minister in his budget speech expressed his gratitude and appreciation for the 75 lakh middle class and lower middle class households who have voluntarily given up their cooking gas subsidy, in response to the call given by the Prime Minister. “Their gesture is a matter of pride for the country,” Jaitley remarked. He should know that same middle class is not feeling that it is getting much in return.