How to unlock middle-class spending power to speed up economic recovery
With the outcomes of India's policy response to Covid a mixed bag so far, the debate around the need for a middle class sentiment boost is taking centre stage again.
In ET Online's recently conducted Mood of the Nation survey, nearly half of the respondents said that a sentiment boost to the Indian middle class would be Modi go nment's best bet to mitigate the economic impact of the pandemic.
The findings hew closely to a pattern that has often been seen in recent consumer surveys: despite years of lip service by successive go nments, precious little has been done to help the middle class — the people who bear a disproportionate tax burden only to find themselves at the receiving end of policymaking again and again.
For an economy of India's nature, the significance of the middle class can hardly be overstated. Consumption, the pillar that normally accounts for over 60% of India's GDP, is majorly reliant on spending by middle class consumers, both urban and rural.
According to some analysts, if growth has to make a comeback at a time when the other three GDP mainstays — exports, private investment and go nment spending — have been throttled by Covid, consumption looks like the most viable avenue.
But while India's current economic situation may appear ripe for some long-overdue succour for the middle class, the track records of successive go nments hardly seem to inspire any hope.
Help for middle class
PM Modi has himself championed the middle class on various occasions. The middle class lives with dignity and is that strata of the society which contributes the most when it comes to running the country, he once said, adding that this class never lives on someone else's mercy.
Finance minister Nirm Sitharn also acknowledged the country's middle class for kee the country going by paying their taxes diligently, timely and honestly.
Right since liberalisation, successive go nments have dangled India's middle-class spending power as a bait to prospective foreign investors. But these acknowledgements notwithstanding, middle-class taxpayers have usually found policy assistance hard to come by, records show.
The past few months under the pandemic's shadow have made for a multiple whammy kind of situation for the Indian middle class. With more and more of these people forced to fall back on their savings, many who had elevated themselves to the middle class over the years are now falling out of that category as their savings dwindle.
After Covid, according to an ILO report, as many as 400 million workers risk falling deeper into poverty, a huge chunk of which are people who currently belong to the middle class.
The April-July lockdown has already led to the loss of nearly 20 million sried jobs, CMIE data showed, signalling the monstrous hit the Indian middle class took from the pandemic closure.
Nature of the tax break
It is in this context that the demand for a tax holiday for the middle class is gaining momentum. There are murmurs that some quarters see a tax holiday as one of the best ways to stimulate demand and restart the economic engine.
Last month, a senior go nment offi al had told The Indian Express paper that the coming round of fiscal stimulus could focus on the middle class. Whether or not these plans include a tax holiday is not clear yet.
In the wake of Covid's decimation of businesses, companies of all hues have ex ted sry cuts at all levels. The middle class consumer was already affected due to the factors mentioned above, and pay cuts pushed a large number of them to the brink. This caused severe dge to India's consumption numbers, which in turn brought down the June GDP print.
Economists say that Modi gt's Rs 21 lakh crore stimulus package failed to achieve the desired end because all those were supply-side measures at a time when the problem was with demand.
The issue is only expected to exacerbate as more and more people begin to fall out of the middle class into lower income brackets. As that happens, demand will be hurt even more, meaning that no similar stimulus to industry is likely to work.
The solution, according to a number of economists, lies in a tax holiday for middle-class consumers up to a certain income bracket — on the lines of something like a six-month no-tax period.
It can help these consumers maintain a certain level of consumption during that period. It would mean that they don't have to stint on basic consumption goods or defer necessary expenses. While major buying decisions will still have to be delayed in all likelihood, the buying of necessities — the life blood of the consumption sector — will be more or less maintained at sustainable levels.
There is, however, a contrarian view as well. Some economists want the go nment to go for a nuanced tweaking of taxes, not an out tax holiday. India has one of the world's lowest tax/GDP ratios, and the need is to find a bnce between giving tax relief without dging the go nment's finances, they point out.
译文来源：三泰虎 http://www.santaihu.com/p/50830.html 译者：Jessica.Wu
What does "A middle class sentiment boost" mean? Does it mean simply to make them feel good? Isn't this exactly what this go nment has been doing by focusing on emotional issues such as Hindu-Mus m struggle, Ram Mandir, etc.? Is this what people are actually thinking? We need concrete actions on the ground if we are to survive these crises. However, as can always be expected from this go nment, they will come up with new "sentiment boosting" slogans and scheme names to pacify the uneducated and emotional population.
Retired Bank pensioners demand to revise basic pension remains unresolved since 7 years. This is how this Gt treats middle class/pensioners
Let there be mass voting & oion poll as to what the majority Indians really want from their Gt.
The simplest and most effective approach is to cut PF contributions for both employee and employer to 6% from current 12% - this will sharply improve take home sries and yet enable lockdown impacted firms to cut costs without firing.
This Go nment and it's Economic advisors don't respect the eternal Laws of Economics . The po itical Masters don't know that Economics is a Science and can not be treated like an Art . Draconian steps like demonetisation ca never be recommended by any Economist of repute , but, our PM did it , riding on the wave of popularity that he enjoyed , most importantly in the Indian middle class .
All advice of reviving the Economy is worthless unless Modi trusts the unbreakable laws of Economics
Most of the 21 lakh cr stimulus package went to the corporates; aka businesses! If consumers do not have money, what good is it feeding the businesses other than enriching them with the taxpayers' money? In that case it is a state sponsored scam!!
the sufferings of the middle class always falls on deaf ears. One surprising aspect is inspite of the suffering it is the middle class the Go nment is able to cheat them beyond means. Let it be education, tax or employment the successive Go nment has done nothing to give any relief to middle class at any given point of time.
Better middle class people stop splurging money on malls, buying new four or two wheelers, eating outside food, burning fuels and shop at high cost supermarkets. Let businesses owned by cronies crash and they come begging on streets. In this way GOI and state gabbarments tax revenues will also take a hit and then see how gabbarments can sponsor freebies and ve bank schemes at cost of taxpayer's money. God bless India and Indians
As usual, no Gt so far has shown gratitude to the honest tax payers, rather the Gt has always used the honest tax paying class which is the middle class as milking cow. It is not a level field between 3Cr tax payers VS rest.Modi Gt is also no exception.
The middle class of India is a dieing lot, till one day they aren't needed.
How about the Po itical parties giving their corrupt money to middle classes Problems will be solved. JAI HIND
The Gt is just tang the middle class more and more, the biggest reason for brain drain.
The poor is anyways getting help as they give them ves, it is high time these po iticians think about the middle class apart from their own interests
Modi and Nirm Sitharn cannot boost middle class. They both can lick just Ambani and Adani !
Go nment should ask Corrupt policticians, Corrupt Go nment staffs to spend to increase GDP.
BJP did not do anything for middle class