Decode Politics: Big sops for middle class in Budget, but who makes up India’s middle class

Addressing the joint sitting of Parliament on the opening day of the Budget session Friday, President Droupadi Murmu linked the economic progress of India with the “aspirations of the middle class and the fulfilment of those aspirations”.

On Friday, PM Modi, too, spoke of the middle class, saying: “I pray that Maa Lakshmi continues to bless the poor and middle class of our country and continues to shower her blessings.”

With the Delhi Assembly polls scheduled for February 5, the incumbent Aam Aadmi Party (AAP) has also made it a point to target the middle class. On January 23, the party issued a “middle-class manifesto”, with a series of demands from the Centre, including increasing the education and health allocations and raising the tax exemption limit. At about 67%, Delhi has the largest middle class population among the richest states, according to some estimates.

What are Budget sops for middle class?

Among the major announcements set to benefit the middle class is the restructuring of the tax slabs. Under the new regime of income tax, salaried individuals earning up to Rs 12 lakh a year will not have to pay any tax.

The tweaked taxable brackets begin at Rs 4 lakh to Rs 8 lakh with a rate of 5%, going up to 30% for incomes above Rs 24 lakh.

Sitharaman also announced that the annual limit for tax deductible at source (TDS) on rent has been raised from Rs 2.4 lakh to Rs 6 lakh, benefiting small taxpayers receiving smaller payments.

The government said it would forgo Rs 1 lakh crore in direct tax revenues through some of these tax reductions with the broader aim of raising household consumption and savings.

Sitharaman also announced that a new income tax Bill will be introduced in Parliament next week.

What are various definitions of middle class?

But with the political emphasis on the middle class comes the difficult task of defining this group. There is no uniform definition of the middle class, particularly in the Indian context. Many Indian definitions of the middle class clash with global definitions, and the sparse availability of household consumption and expenditure data further complicates estimations of India’s middle class population. While some estimates are income-based, others are consumption-based; alternative measures include counting the number of taxpayers or on the basis of education and occupation.

For instance, a survey report published by the People Research on India’s Consumer Economy (PRICE) in 2022 defined a middle-class household as one that earns between Rs 5 lakh and Rs 30 lakh per year, and a middle-class individual as one who earns between Rs 1.09 lakh and Rs 6.46 lakh a year.

The National Council of Applied Economic Research (NCAER), a government-private partnership body, however, places a middle-class household’s income between Rs 2 lakh and Rs 10 lakh per year.

Nobel Prize-winning economists Abhijit Banerjee and Esther Duflo, in 2008, defined the Indian middle class as having a daily per capita expenditure between $2 (roughly Rs 160) and $10 (Rs 800), or between Rs 58,000 and Rs 2.9 lakh a year.

But as far as the government is concerned, households earning less than Rs 8 lakh a year are considered a part of the Economically Weaker Section (EWS), making them eligible for some forms of reservation.

How big is the Indian middle class?

In 2022, PRICE published estimates of the middle class population. In 2020-21, India’s middle class accounted for roughly 31% of the population – about 43.2 crore people or over 94,000 households. According to PRICE, the middle class population is expected to cross 100 crore by 2046-47, accounting for 61% of the population.

However, middle class population figures vary greatly across sources. For instance, an analysis by Oxford Economics, associated with Oxford University, showed that in 2022 there were 46 crore middle-class Indians. In 2021, an analysis by the Pew Research Center, a US-based think tank, found that India’s middle-income population (defined by it as households with a daily per capita consumption of $10 to $20), fell from 9.9 crore people before the Covid-19 pandemic to 6.6 crore afterwards. Based on its latest estimate, the middle class accounts for just 4.78% of India’s population. According to Pew, a vast majority of Indians fall within the low-income category, comprising those with daily per capita consumption between $2 and $10.

Some older estimates, including those based on the India Human Development Survey (IHDS), designed by researchers at the University of Maryland in the US and the NCAER, found that in 2011-12 India’s middle class made up 28.05% of the population. However, another analysis of the IHDS data from 2014 put the proportion of middle class households (defined as those with annual incomes between Rs 55,000 and Rs 88,000) at 40%.

One government estimate, calculated on the basis of taxpayers, put the middle class numbers at 2.87 crore in 2011-12 or roughly 2% of the population.