January 2023

BCAJ February 2022

The Middle Class Deserves More!

Dr. CA Mayur B. Nayak, Editor

The year 2022 is behind us. It was an eventful year post-pandemic. Barring the Omicron wave in the first quarter of 2022, the effect of the pandemic has been less severe in India compared to most other countries of the world. Government spending on infrastructure and targeted aid to the poor and needy sections of society, during the two years of the pandemic, showed their impact in bouncing back of the Indian economy. Due to timely and effective measures like free rations and food subsidies to the poor, India prevented an increase in extreme poverty level.

However, according to experts, the pandemic has taken a great toll on the middle-class population of India. Experts from Mumbai University have defined the middle class as spending from US$ 2 to US$ 10 per person per day (i.e., Rs. 160 to Rs. 800 approx.). According to this criterion, almost half of India’s population of 1.3 billion is in the middle class.

Many middle-class families have plunged into poverty due to the loss of jobs, non-availability of food subsidies, and other help from the Government. This one class has been neglected by successive Governments, may be because it is not viewed as a united vote bank. The poor can survive on social welfare schemes with the Government providing free and subsidised foods, medical treatments, electricity, homes, education, gas cylinders, and other freebies. The rich do not need any such help and can thrive despite inflation or recession, whereas it is the middle class that is crushed by high inflation and lack of support from the Government.

India has a strong middle-class population which has the potential of driving the economy to newer heights, if only, it is empowered, encouraged, and provided fair treatment. Middle-class people, especially SME entrepreneurs and salaried people in unorganised sectors, pay taxes all their life, but have no social security to take care of them in their old age. A passbook system should be devised wherein taxes paid by a taxpayer are recorded and after a certain age, pension is paid to him in the proportion of taxes paid by him.

One of the criteria for the reservation for the Economically Weaker Sections of the Society is that “the annual income of the concerned household should not be more than Rs. 8 lakhs.” Ironically, a household earning Rs. 8 lakhs annually, is considered economically weak whereas the Income-tax Act, 1961 provides the threshold of only Rs. 2,50,000 (with the tax rebate of Rs.12,500 the effective limit is Rupees 5 lakhs). Most Indian households have only one earning member and therefore practically this limit, which is quite low, is for the entire household, so to say.

If one were to calculate GST paid on household expenses, then one would find that the actual burden of taxes is much more for the middle class, as it is the largest consumer class in society. Yet, unfortunately, it is at the receiving end with no relief in sight. With the increased collection in GST, there is a case for a reduction in the rate of GST, an increase in the threshold exemption limit, and a reduction of personal income tax rates. In any case, people are paying GST and contributing to the growth of the Nation.

There are some serious non-tax implications as well, of neglecting the middle class. Many families have adopted the One-Child policy as they cannot afford expensive education for their children. Most of the children from middle-class society are aspiring to leave India due to the caste-based reservation policy, lack of incentives, and opportunities at home. Foreign jobs appear to them as the only option to support their families and pull them out of the curse of belonging to the “middle class” in India. Can we not stop this? Can we not provide a dignified living for a middle-class person in India? After all, he is the backbone of the Indian economy. Can we expect some relief in the Union Budget 2023 for the middle-class population of India which is reeling under the burden of inflation and pandemic shocks?

A high-level committee may be constituted to look into the woes of the middle class, which can suggest multidimensional measures to provide much-needed relief.

Let me leave you with a famous quote from an American Political Economist, a former dean of the MIT Sloan School of Management and author of several books on Economics, the late Mr. Lester Thurow:

“A healthy middle class is necessary to have a healthy political democracy. A society made up of rich and poor has no mediating group either politically or economically”.

Let’s usher in the new year 2023 with the hope that the middle-class population in India will get the much-needed attention, recognition, and well-deserved encouragement both, politically and economically. The government is focussing on “Ease of Doing Business” in India, and I think the time has come to focus on “Ease of Living in India” as well.

Best wishes for a happy and prosperous New Year!

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