Budget 2025-26: Will Finance Minister address middle class concerns-OxBig News Network

As Finance Minister Nirmala Sitharaman will present her eighth Budget speech in the Parliament on February 1, the nation, especially the middle class and the industry is expecting significant announcements, including income tax breaks, GST rationalisation, and measures aimed at reviving the economy, consumer sentiments and investment.

Signs that the Indian economy is stressed, from investment and consumption point of view, are all evident.

According to reports, urban consumption has been hit the most by high inflation and lower credit off take. Banks give credit off-takes to help businesses acquire financing for future projects through the promise of future income and proof of an existing market.

Slowing economy and middle class

As light-hearted memes on social media reflect the sentiments of the middle class, depicting the need for desperate measures in desperate times, the official numbers spell out the hard facts.

The domino effect on manufacturing, employment, consumption, investment etc—factors majorly affecting the middle class—are all visible.

In the current fiscal, the Indian economy is projected to grow at 6.4 per cent.

Earlier this month, the National Statistics Office forecast annual Gross Domestic Product growth of just 6.4% for the financial year ending in March.

The NSO said India’s real GDP is expected to rise 6.4% in 2024-25, slowing from 8.2% in 2023-24. The Economic Survey in July last year had projected a GDP growth rate of 6.5-7 per cent.

According to experts, this was not only the slowest growth in four years, it was also below the initial projected growth rate of 6.5%-7%.

There is no clear way to tell the exact size of the middle class, however, it is largely defined by income or consumption levels.

Stated to be a major portion of the population, the section plays an important role in driving consumption, boosting revenues and supporting economic growth. At the same time, the section, especially the salaried class, also bears a disproportionate share of the financial burden by way of taxes, direct and indirect both.

RBI-consumption

According to the Reserve Bank of India, driven by higher domestic demand and revival in public capital expenditure on infrastructure, the country’s economic growth is expected to rebound. However, the elevated food inflation requires close monitoring, stated the ‘State of the Economy’ article in the RBI’s January bulletin.

With inflation at high level, the RBI has been holding interest rates at higher levels, which is a discouragement for borrowers.

Though a counter is that muted demand for fast-moving consumer goods (FMCG), and other things, reflects changing middle-class consumption patterns driven by technological advancements and shifting priorities, there are reports of inflationary pressure resulting in households reallocating spending, prioritising essentials.

In December 2024, India’s Wholesale Price Inflation (WPI) rose to 2.37 per cent, marking another month of wholesale inflation primarily driven by increase in price of food articles and manufacturing of food products.

Mounting pressures on the middle class is said to be a major contributor to the slowing GDP.

Union Budget 2025-26—expectations

With a key election ahead in Delhi—a state that comprises a big chunk of middle class—it is only natural that this time the expectations from the FM are longer than ever.

Experts say the Central Government can no longer afford to present a “continuity type Budget” and must “loosen its purse strings to provide the middle class money in their hands”. There is a hope that the FM may go in for some changes in key domestic drivers of economy—the personal income tax and CapEx—to boost growth, spending and investment.

Capital expenditure (CapEx) is the payment with cash or credit to purchase long-term physical or fixed assets used in a business’s operations.

A long wishlist

Amid global economic uncertainties and lagging urban consumption, the buzz is that the personal income taxes structure, both in terms of rates and deductions, could be rationalised in order to put additional disposable incomes in the hands of lower and middle income groups.

According to reports, the FM is also likely to introduce a new income tax Bill during the upcoming Budget session.

Aiming to simplify taxation laws and syncing them with the prevailing economic scenario, the initiative is a “part of the government’s commitment to create a more taxpayer-friendly and efficient framework”, as per agency reports.

A committee in charge of revising the law is contemplating replacing the 63-year-old Income Tax Act, 1961, instead of amending the existing law, they add.

Meanwhile, the wishlist includes measures and schemes for encouraging manufacturing, technology transfer, public-private partnerships, R&D, collaboration with global players etc. The real estate, too, is also banking on changes to provide relief to middle section homebuyers.

One of the suggestions is to simplify GST for under-construction properties and extend better tax benefits for affordable housing and rental schemes to make urban housing accessible and attractive.