MIDDLE CLASS CHECKS IN
The Union Budget signals the coming of age of India's middle class and takes the first steps to free them from government oversight. EPISODE #111
Dear Reader,
A very Happy Monday to you.
Last week Finance Minister Nirmala Sitharaman presented her fifth consecutive Union Budget.
The big headline was her tax offering for the middle class—who have patiently waited for the last 10 years for a look-in from the Bharatiya Janata Party (BJP)-led National Democratic Alliance (NDA).
But if you look under the hood as it were, the FM did not just offer a sop. Instead it is a recognition of India’s middle class coming of age. Not just in terms of size (432 million), but also in its ability to thrive without handholding by big brother (government). So this week I put the spotlight on the Budget and the middle class.
For my overall view on the Budget please do read the cover story I authored jointly with the ever brilliant Haseeb Drabu. Will be sharing the link in the recommended reading section at the end of this newsletter.
The cover picture for this week is sourced from the Press Information Bureau. It is a visual from this year’s Republic Day of what is a mostly middle class section of the audience. Don’t miss the surfeit of smart phones and of course the warm smiles.
A big shoutout to Shiv, Ranjini, Gautam, Premasundaran, Vandana, Aashish, Monica and Vijay for your informed responses, kind appreciation and amplification of last week’s column. Once again, grateful for the conversation initiated by readers. Gratitude also to all those who responded on Twitter and Linkedin. Reader participation and amplification is key to growing this newsletter community. And, many thanks to readers who hit the like button😊
JA (SIMRAN), JEE LE APNI ZINDAGI
For the last 10 years India’s middle class has patiently awaited their turn. They were grateful for all the gains accruing their way thanks to ease of living, but deep down they wanted their place in the sun.
Finally, the moment arrived. In fact, the big headline of Finance Minister’s fifth consecutive budget was about the giveaways to the middle class. Look under the hood and what you think is not what you get.
This was not the plain vanilla giveaway. No lollipop.
Instead, it was like a coming of age present. Exactly why I opted for the headline sourced from a Bollywood super hit: Dilwale Dulhaniay Le Jayenge. A daughter comes of age and a conservative father submits to her wishes to taste the freedom the young so desire.
Similarly, FM Sitharaman just freed the middle class from conforming to the established practice of inducing savings through tax concessions. By making it the default option on the income tax returns page, she has unambiguously signalled the new way forward for a population that is so overwhelmingly young—two out of three Indians are less than 35 years of age.
Having experienced good times (especially in comparison to their parents who had to bear the cross of a misguided socialist economic regime) they are bereft of any baggage. More importantly, they are aspirational and not averse to taking risks.
Coincidentally, the size of the middle class—a very heterogeneous cohort—has reached a critical mass at 432 million. It will only grow from here—projected at 715 million by 2030-31. They will, for sure, influence the future polity of India.
Mindset Reset
One statistic that gives us an insight into the altered consumer behaviour of this new India is their attitude to the stock markets.
People are flocking to it in hordes. The growth in demat accounts—wherein investors hold shares, securities in an electronic format—has been meteoric. It has more than doubled in three years ended (till October) 2022-23.
Check out the graphic below:
According to analysts, retail investors now account for majority (52%) of daily transactions. Clearly, risk behaviour has witnessed a tectonic shift.
In a post-budget interview granted to The Open magazine, FM Sitharaman, in response to a pointed question on the logic of the new tax slabs sans tax sops, said as much:
“Yes, absolutely! That is what I also tell people who say that because of the emphasis on the new tax regime I have disincentivised investment, insurance, and so on.
My reply is that I don’t think we should judge the assessee. If a person has more money in hand, then such a person can figure out where to put it or how to use it; rather than saying that incentive lies in a particular option. A person can prioritise for his family. How can the government be the better judge?
So these changes give confidence to income taxpayers that they have more money post-tax and they know what to do with it.”
The FM is sharing a great insight here. She is arguing that one size does not fit all. It worked in an old India where there were few options and hence risks were steep. Further, disposable incomes were hard to come by and inducements like tax breaks were used to incentivise the middle class to save.
Given the plethora of options—if you don’t want to be exposed directly to the stock markets, one can opt for mutual funds—people have already begun to pivot. The new generation is aspirational, (mostly) earning much better than their parents and hence possess both disposable income and a risk appetite.
Yes, the FM will be saving on tax giveaways no doubt. To be fair to Sitharaman though, while the nudge to the new regime is obvious, she has not withdrawn the security of the old scheme.
It is just that the new regime is now the default option on the home page for filing Income Tax Returns.
Change is here to stay.
Recommended Reading/Viewing
Sharing the latest post of Capital Calculus on StratNews Global.
This time I put the spotlight on Modular Open Source Identity Platform (MOSIP), housed in the International Institute of Information Technology (IIIT), Bangalore.
Little under a fortnight ago MOSIP inked a partnership with the National Civil Registration Authority (NCRA), Sierra Leone, to build and launch a pilot program for a national digital ID system—similar to Aadhaar, the 12-digit unique identity accorded to 1.3 billion Indians.
So far, including all the pilots and actual rollouts, nine countries are either keen to implement or have actually rolled out a national identity project driven by MOSIP. Effectively, the idea of India’s first public digital good, Aadhaar, is now crossing borders and acquiring international legitimacy.
Why are countries so keen to adapt an Aadhaar equivalent in their countries? How will MOSIP guarantee privacy and respect sovereign jurisdiction over individual data? And what does this mean for India’s soft power capability, traditionally defined around cuisine, Bollywood, music, and art? To understand why and more we spoke to Professor S Rajagopalan, President, MOSIP.
In his typical professorial style Rajagopalan explained the idea of MOSIP, patiently answered all the queries.
Do watch and share your thoughts. Sharing the link below.
As promised in my introduction, I am also sharing the cover story on this year’s Budget that Haseeb Drabu and me co-authored for Open Magazine.
The link to the cover story is here.
Sharing a small sample:
“THE BHARATIYA JANATA PARTY (BJP)-LED NATIONAL Democratic Alliance (NDA) owns several firsts in the making of the Union Budget. Under the leadership of then-Prime Minister Atal Bihari Vajpayee, it buried a colonial legacy by advancing the presentation of the Budget to 11AM instead of 5PM—aligned to the opening of the financial markets in London.
Under Prime Minister Narendra Modi, NDA, in its 10 Budgets, has rewritten the entire grammar of the making of the Union Budget. This process culminated in the fifth and final full-fledged Budget of Finance Minister Nirmala Sitharaman on February 1.”
If you wish to receive a pdf of the entire magazine do email me.
Till we meet again, stay safe.
Dear Anil,
Very interesting take on the middle class!!
India's middle class is now well educated, enterprising and innovative.It is a critical market for most goods and services, contributes to nation's tax revenue and plays an important role in maintaining political stability in the country. India's has had a service led economic growth as the tertiary sector contributes maximum to our GDP ( around 54%).
The comparison with the iconic DDLJ makes the article even more engrossing.This movie captures the New India's personality, globalised but rooted in Indianess, fun loving but family oriented and it resonated across Indians living in every corner of the world!!
Dear Anil
There have been plenty of articles on the latest budget but thanks for highlighting its focus on the middle class. You have mentioned that the middle class has patiently waited for the last ten years. I think that they have always been waiting in the sidelines. That's so ironical considering that they constitute the majority of the population of our country. Plus, the maximum number of tax payers also come from this neglected segment of the society. They have always been taken for granted. The poor get noticed because most of the policies focus on garibi hatao. The rich have the clout to assert themselves and make themselves heard.
It's heartening to note atlast the middle class has come of age. Better late than never. This Simran has been granted permission to lead her life according to her own terms DDLJ style.