Middle Class Back In Focus?

FM might rejig personal taxes to trigger consumption, demand & overall growth

-  Rajeev Dubey

Budget 2020

IF MODI 2.O’s Interim Budget was aimed at farmers and the poor, Nirmala Sitharaman’s Budget 2019 and subsequent announcements were for businesses and corporates, Budget 2020 has little choice but to focus on the only section largely neglected in both the previous Budgets — the Indian middle class.

In many ways, that’s inevitable. After all, the middle class has borne the brunt of the plateauing of incomes in the past 4-5 years even as inflation has continued unabated. A relief is long overdue. And now the Centre’s surprise move to slash corporate tax rate to 22 pc — and even lower 15 pc for new manufacturing companies — renders the prevailing higher personal income tax rates virtually untenable.

The FM will be under pressure to rejig personal taxes to leave more disposable income in the hands of individuals and trigger consumption/demand teetering at a seven-year low.

Neither Piyush Goyal’s Interim Budget nor Nirmala Sitharaman’s first Budget in 2019 appeared convinced about reviving consumption before attempting to trigger an investment cycle in the economy. At a time when GDP growth was slowing due to lack of demand/consumption in the economy, both the Budgets obsessed over the Chinese model of investment-led growth. Both aimed bombastically at reviving ‘animal spirits’ in the economy at a time when businesses had no appetite for fresh investments because utilization of existing capacities was barely two-thirds. It was hardly surprising then that both have failed miserably.

Wrong diagnosis has cost the Indian economy at least four aimless quarters since then and further deceleration in GDP growth which has yet to be arrested. It’s time to right the wrongs. So what are Sitharaman’s options to give confidence to the middle class to spend?

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