Spend signal: Will middle class cheque in?

Lakshmi did smile for middle classes, as strongly hinted by Modi a day before the Budget. To understand the politics behind FM’s Rs 1 lakh crore giveaway in personal income tax revenue, you must not only look at the immediate electoral logic – Delhi, with a large taxpayer base, votes on Wednesday – but also the chatter among tax paying classes in the months preceding the Budget.
There was the flood of social media memes that came after the last round of GST rate changes hit headlines – popcorn tax rate jokes, caricatures of FM as ‘Tax Wali Tai’.’Tax terrorism’ became a much talked about topic on X. True, and as is usual in social media, some of these critiques came from those always critical of Modi govt, just as memes that lampoon opposition parties come largely from right wing social media users.
But govt had a strong sense that all the criticism was reflecting a broader sense of frustration among middle classes. There was that ‘what’s in it for me’ feeling among India’s salaried groups, many of whom had been enthusiastic supporters of Modi. Macroeconomic evidence for this sense of being left out came from data on slowing consumption growth in urban centres, with major FMCG companies reporting slow sales. It came from a sustained period of high inflation and anaemic wage growth – a double blow against purchasing power of middle classes.
Post general election, when BJP lost its single party majority, the party had won Haryana and Maharashtra on the back of clever caste calculus and big cash transfers for lower income and rural voters. But countrywide, as economic growth slowed, as middle classes’ spending power dimmed, unhappiness grew in the small but influential group.
Modi would have picked up on this sense of anger, known that his govt needed to do more than promise ‘Viksit Bharat’ and returning India to its ‘cultural roots’ – therefore, his pre-Budget hint and, therefore, FM’s tax giveaways.
To make the message sweeter, the Budget also promised fewer hassles when the wealthier classes send money abroad for funding their children’s foreign education. That was coupled with promises of a more taxpayer friendly tax department.
Modi will hope that more money in the hands of middle classes will make them happy. He knows Opposition has no effective answer to this. It’s impossible to hazard a guess how meaningful the political impact will be on India’s salaried groups. The fact that economic growth is not expected to pick up over the next few years is a potential dampener – middle classes, along with the rich, are major beneficiaries of brisk growth. There’s also the potential impact of Trump’s disruptions on India’s economy.
None of this really matters for Bihar, Indian poorest state, where the middle class is tiny, and the poor are among India’s worst off. What Bihar’s politicians want is GOI’s largesse. And since Bihar is going to polls later this year, and because BJP is hellbent on keeping the state it governs in alliance with JD(U), the state was front and centre in the Budget.
Winning Bihar, electorally the second largest state after UP in north India, is not just a matter of political prestige for BJP. A victory is crucial to maintain the momentum generated by wins in Haryana and Maharashtra. Another big defeat for an opposition combine – RJD and Congress in this case – can potentially wreck the national anti-BJP coalition that’s already under severe stress. On the other hand, were BJP-JD(U) to lose Bihar, the opposition is likely to revive politically.
Bihar, of course, featured prominently in the last Budget too. But in 2024, Andhra Pradesh kept it company. Nitish Kumar and Chandrababu Naidu were Modi’s new, vital allies, and due recognition was given to both. This time, it’s Bihar all the way – from airport expansion to GOI help in building a vital canal for Kosi river to promoting tourism in key sites of Buddhism, from an agricultural board that will help makhana (fox nut) growers get better prices to the promise of building an institute for food technology.
Of course, when it comes to serious wooing of voters, cash transfers and social engineering will kick in. But months before Bihar goes to polls, Modi govt has sent a message to the state – we are thinking of you.
There were smaller political messages in the Budget.
First, the promise of a medical insurance scheme for gig workers, whose ranks continue to swell, in part because the economy is not generating enough non-farm/regular salary jobs. Aggregators are dead opposed to any data base for gig workers. But FM seemed determined to break through that resistance.
Second, the Dhan-Dhanya Krishi Yojana, which aims to give special attention to 100 districts hamstrung by poor farm yields, can generate political goodwill for BJP if implemented well and quickly, a big if. Third, the Budget rolled out schemes for small vendors and SC/ST women entrepreneurs, two groups with politically significant footprints.