Middle-Class Demand and Tax Cuts: Budget 2025-26 Analysis
Why in the news
Commentary on Budget 2025-26 questioned its bet that middle-class spending will now drive the economy, since nobody agrees who the middle class is.
Key facts
- Three goals at once: lower taxes, lower fiscal deficit and faster growth, which normally conflict.
- Capex: rose from ₹3 trillion (2019) to above ₹11 trillion (2024); the Budget hopes consumer demand will now lead growth.
- 2019 corporate tax cut: cost ₹1.85 trillion in revenue, yet just 0.1% of companies made fresh investment.
- Long-run US studies also show little link between tax cuts and lasting growth.
How big is the middle class?
| Indicator | Figure |
|---|---|
| Registered vehicles | 280-326 million |
| PM Modi’s “neo-middle class” | 250 million |
| Free food grain recipients | 800 million (60%), so middle class under 600 million |
| Returns filed in 2023 / paying no tax | 75 million / 47 million |
| Actual taxpayers | about 27 million |
Concerns
- Can the richest 30 million in a 1.4 billion population be called “middle class”?
Exam angle
- Capex: ₹3 trillion to over ₹11 trillion (2019 to 2024).
- Related terms: fiscal deficit, tax base, 2019 corporate tax cut.