Analysis of India's 2024 Union Budget: Impact on the Middle Class

Every year, the Indian government presents the Union Budget, which outlines proposed economic policies, revised tax regimes, and spending plans. As a keen observer, I delve into the implications of the 2024 Union Budget, particularly focusing on its impact on the middle class. This analysis will cover key expenditure areas, the role of small and medium enterprises (MSMEs), agricultural reforms, and tax changes.

Expenditure

1. Employment and Upskilling

The 2024 Union Budget introduces several measures aimed at supporting employment and upskilling. Employers will receive an extra Rs. 15,000 for each new hire annually over two years. This funds will be credited through Direct Bank Transfer (DBT) in tranches. While this initiative seeks to aid employers in hiring new staff, critics argue that the focus should be on skill development rather than mere wage subsidies. Additionally, employers with over-threshold hiring will receive a reimbursement of Rs. 3,000 per month for two years towards the Employee Provident Fund Organization (EPFO) contributions. This might increase employment but raises questions regarding the skill gaps among newly recruited employees.

2. Support for MSMEs (Small and Medium Enterprises)

The MSME sector, often vital for the economy, is underpinned by several new schemes. Under the Credit Guarantee Scheme, all MSMEs will be eligible for loans to buy machinery and equipment without third-party guarantees, significantly boosting entrepreneurship. Notably, MSMEs who have repaid their loans can now access an extra loan of Rs. 20 lakh under the Mudra Loan Scheme, an increase from the earlier 10 lakh threshold. Another critical change is the allowance for public sector banks to assess MSMEs internally, allowing smaller units to obtain credit without formal accounting units. Additionally, the threshold for converting trade receivables to cash for MSMEs has been reduced from Rs. 500 crore to Rs. 250 crore, enabling more MSMEs to liquidate cash from trade receivables. To further assist exports, export hubs are being established to boost MSME exports, which contribute significantly to India's exports.

3. Rural Economy

The 2024 Union Budget includes substantial allocations for the rural economy, addressing concerns raised regarding farmer welfare. The agriculture budget has been increased by Rs. 11,000 crore, making it the third-highest allocation after defense. Initiatives such as scientific institutions and gram panchayats are tasked with teaching farmers about sustainable farming techniques. These methods aim to reduce greenhouse gases, enhance soil health, and boost farmers' incomes.

Revenue

1. Tax Revisions

The budget introduces several tax-related changes to benefit the middle class. Revenue slabs from Rs. 6-7 lakhs to Rs. 9-10 lakhs have seen reductions in tax rates. The tax rate for the Rs. 6-7 lakh slab has been lowered from 10% to 5%, while the rate for the Rs. 9-10 lakh slab has decreased from 15% to 10%. This change is expected to provide a deduction of around Rs. 17,500 for those who fall within these income brackets.

The standard deduction for salaried employees is also increased from Rs. 50,000 to Rs. 75,000. Additionally, the deduction on taxation of pensions has been raised from Rs. 15,000 to Rs. 25,000. These tax reforms should offer significant relief to the middle class, particularly salaried individuals.

2. Capital Gains

The budget also includes changes to capital gains taxation. Short-term capital gains from financial assets will now be taxed at 20% instead of 15%, while long-term capital gains on financial and non-financial assets will now be taxed at 12.5%. Long-term gains up to Rs. 1.25 lakh have been exempted, an increase from the previous threshold of Rs. 1 lakh. The removal of the indexation benefit on non-financial assets like houses is a notable change, affecting capital gains calculations.

A special tax will be levied on share buybacks starting October 1, 2024, impacting shareholders. Overall, these tax reforms aim to provide more equitable revenue generation and benefit the middle class.

Is it for the Middle Class?

Given the various measures outlined in the 2024 Union Budget, the benefits are predominantly for first-time jobholders and unestablished startup owners. However, for individuals not falling into these categories, particularly those in the stock market, the budget might not provide significant advantages. The upside is clear: employment management and skill development for new hires, credit accessibility for MSMEs, and rural economic reforms. Despite these positive measures, the budget's impact on the broader middle class remains limited.

Overall, the budget reflects a nuanced approach aimed at supporting specific segments of the population.

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