The Budget has once again ignored the middle class. The pandemic had exposed the fragility of India’s consumption base
There was this meme that went viral on Twitter soon after Finance Minister Nirmala Sitharaman unveiled her “historic” Budget. It showed a picture of three Arctic wolves. Two of them — one labelled ‘upper class’ and the other ‘lower class’ — appeared to be laughing heartily, while the third, tagged ‘middle class’, looked on glumly. “It’s hard to be middle class”, the Tweet said.
Despite all the talk of reform and market economy, the fact remains that for the past decade or so, particularly from UPA-2 onwards, our economic policies have been a curious mix of selective opening up for large capital and an increasingly welfarist thrust on spending, with a leavening of infrastructure expenditure which is expected to drive growth.
In that sense, Budget 2021-22 packs no surprises. It has continued on the well-trodden path of soaking the slim base of India’s largely salaried middle class, to pay for everything from the grand infrastructure spending plan to assuaging farmers with an agriculture infrastructure fund which will be funded by a cess on petrol, diesel, alcoholic beverages and the like. All of which the middle class not only consumes in large quantities but considers a necessary expense (I am talking about expenditure on fuel here and not alcohol, although many will consider that a necessary expense as well!).
One would think that after decades of disappointment, the Indian middle class would have become inured to being could-shouldered by the Finance Minister of the day come Budget time. But this time around, hopes were exceptionally high that the long suffering middle class would have finally been given some relief.
That is because the Covid pandemic, unlike localised natural disasters or catastrophes, affected every section of society, including the middle class. 2020 will go down in history as arguably the first time that every Indian household, barring those of the uber rich, saw income loss or contraction. Millions of jobs were lost in the informal sector of course, and the early days of the lockdown were witness to scenes of lakhs of migrant workers disconsolately trekking home.
Loss of white collar jobs
But, equally, millions of white collar jobs were lost. The 20th wave of CMIE’s Consumer Pyramids Household Survey (CPHS), whose findings were released in September 2020, estimated that over 66 lakh white collar professionals lost jobs between May and August.
The job losses cut across all sectors — manufacturing, IT and ITES and BPO, education, financial services, and of course, jobs in service industries like travel, hospitality, tourism, food and so on, which got decimated by the lockdown. According to CMIE estimates, more than 2.1 crore salaried jobs were wiped out during Lockdown 1-3.
That is not all. Those who managed to retain their jobs did so at a price. There were deep and wide pay, incentives and allowance cuts across the board, as most organisations battled to deal with catastrophic decline in business and sharply reduced cash flows. According to a survey by a leading online jobs portal, 74 per cent of organisations had imposed some form of pay cut or the other.
In many cases, as growth started reviving post Unlock 4.0, some of these pay cuts are being rolled back. But barring a few cases, the cuts are merely being partially or fully restored — the income lost during the paycut period has become permanent. Nobody is talking of backpay, except for government employees.
Then there were the unexpected extras. Middle class households are also large employers of informal labour, particularly in urban areas. And they listened to their PM, lit diyas, banged plates — and continue to pay their personal workforce. Single and even no-income households hit by the job loss of the wage earner nevertheless struggled to pay fees for their children, buy expensive devices so that they could work from home or their children could attend online classes, and of course, the cost of broadband access.
The Covid burden
And, then, there were the millions of middle-income households which had to deal with the catastrophic medical expenses of treating Covid-affected loved ones. For the rich — and yes, many rich people got Covid — hospitalisation costs were a mere bagatelle. For the poor, there were the badly stretched, but reachable government-run facilities. The middle class paid through its nose — at some point, the story of the shameful exploitation of the Covid crisis by the private healthcare sector needs to be probed in detail — and burnt more of its savings.
The Finance Minister could have at least taken some note of this pain and offered a few salves. A rise in standard deduction — none has been offered since Narendra Modi came to power in 2014 — would have at least put some spending money into the hands of the people. Far from increasing the Section 80C deductions, which offers tax deductions of up to ₹1.5 lakh on payments of life insurance premiums, principal payment of home loan, fixed deposits, provident fund, etc could have been given. Instead, a provision to tax PF contributions above ₹2.5 lakh a year was introduced, taxing the only social security provision available to the middle class.
Far from recognising the ‘new normal’ of work from home, and perhaps giving a small break towards Internet access costs, any such allowance, even if given by a generous employer, remains a taxable perquisite! There were some sops for “affordable housing” but the government’s definition is completely at variance with how the realty sector looks at it.
Today, with the minimum entry cost for a small flat at over ₹60 lakh within the greater metropolitan area of a metro — I am not talking downtown here — these sops are not for you or me.
Yet, this is the segment on which growth crucially depends According to a 2018 study by BCG, middle income households — defined as those earning between ₹5 lakh and ₹20 lakh per annum — accounted for nearly 43 per cent of India’s then domestic consumption base of ₹11-lakh crore.
For growth to happen, one needs consumption. For the consumption to happen, one needs the middle class. And the this class needs some relief.
As the meme said, it’s hard to be middle class.
The writer is former Editor of BusinessLine