Opinion
Union Budget 2025 strengthens the middle class for a consumption-driven economy
Summary
- Individuals earning up to ₹12 lakh annually are now exempt from paying income tax, a move that directly benefits those in the ₹6-20 lakh income range—home to 75% of the salaried middle class
The Union Budget 2025, presented by finance minister Nirmala Sitharaman, introduces key measures to strengthen India’s middle class. According to estimates by PRICE, this segment—households earning between ₹6 lakh and ₹36 lakh annually at 2024-25 prices—comprises over 560 million people across 126 million households, making it a driving force behind consumption, investment, and innovation in the economy. Notably, nearly 40% of this group consists of salaried workers, underscoring their crucial role in sustaining economic growth. With a strong emphasis on tax relief, housing, employment, and infrastructure development, the budget aims to enhance financial security, boost demand, and propel India toward its vision of Viksit Bharat—a developed and economically empowered nation.
A key highlight of the budget is the revision of income tax slabs, providing much-needed relief to middle-class taxpayers. Individuals earning up to ₹12 lakh annually are now exempt from paying income tax, a move that directly benefits those in the ₹6-20 lakh income range—home to 75% of the salaried middle class. The increase in the standard deduction further strengthens their spending power, ensuring higher disposable incomes. These measures are designed to fuel demand for consumer goods, automobiles, and housing, reinforcing India's growth momentum.
Housing and urban development
Housing, a key aspiration of middle-class families, has received a strong push in Union Budget 2025. Rising real estate prices, especially in urban areas, have often placed homeownership out of reach. To address this, the government has expanded the PM Awas Yojana (Urban) and introduced additional tax benefits on home loans, making it easier for families in the ₹12-35 lakh annual income bracket to own homes. With salaried individuals forming 46-60% of this segment, the incentives will encourage real estate investment, driving demand in the construction and housing sectors. Complementing this is a substantial allocation for urban infrastructure development, including metro expansions, smart city initiatives, and improved public transport. These efforts will not only enhance living standards but also create employment opportunities, ensuring that economic benefits reach a wider population.
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Employment and skill development remain central to the government's agenda, with a renewed emphasis on job creation in high-growth sectors. The Skill India 2.0 initiative is set to upskill millions of youths, equipping them for emerging industries such as technology, digital services, and renewable energy. Startups and MSMEs—the engines of job creation—have also been given a boost through tax incentives and easier access to credit. These measures aim to provide the middle class with multiple economic opportunities, whether in salaried roles or entrepreneurship, fostering a more dynamic and resilient workforce.
With higher disposable incomes and growing employment opportunities, India’s consumption story is set to gain momentum. Tax savings will encourage spending on essential and discretionary goods, boosting sectors like retail, FMCG, and consumer electronics. Housing incentives will drive purchases of real estate, home appliances, and automobiles, providing a multi-sectoral stimulus. Additionally, lower GST rates on health insurance and increased digital education investments will improve healthcare access and skill development, strengthening long-term financial security for middle-class families.
Despite the optimism, challenges remain. Inflationary pressures could dilute the benefits of increased disposable income, as rising costs for food, fuel, and utilities might strain household budgets. Additionally, bureaucratic delays in tax refunds, home loan disbursals, and policy implementation could slow the intended impact of the budget. While middle-class participation in the economy remains robust, sustained job creation is critical to maintaining growth, especially as India’s workforce expands. The success of MSME and startup incentives will depend on efficient execution and reducing bureaucratic hurdles to foster innovation and employment.
Looking beyond 2025, additional reforms will be needed to sustain middle-class prosperity. Simplifying tax structures further and introducing investment-linked deductions can encourage wealth creation. Expanding pension schemes, unemployment benefits, and healthcare subsidies for the lower-middle-class workforce will provide a stronger social safety net. Promoting women entrepreneurs and professionals through targeted incentives can further accelerate household income growth and economic participation. Digital and financial literacy programs will also be key to integrating lower-income households into India’s formal economic system.
The Union Budget 2025 sets a strong foundation for empowering the middle class, acknowledging their central role in India’s economic progress. By focusing on tax relief, housing, employment, and consumption, it seeks to provide financial stability and greater economic mobility. While challenges exist, a well-executed implementation strategy can ensure that these policies not only stimulate demand and drive growth but also contribute to India’s long-term vision of an inclusive, consumption-driven economy. If effectively realized, these initiatives will help transform India into a Viksit Bharat, ensuring sustainable prosperity for the middle class in the decades ahead.
Rajesh Shukla is managing director & CEO, People Research on India's Consumer Economy at the Indian Institute of Management-Udaipur
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