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Friday, December 8, 2023

How’s the Josh, Middle Class?

Ever since the Modi government came to power in May 2014, there has been a constant clamouring of – what has he done for the middle class?

Well, the interim budget announced today by acting FM Piyush Goyal has finally put this question to rest. By giving full tax rebate for those with income upto 5 lakh, a key middle class demand has been met. If one includes standard deduction and other tax-saving investment options, those earning upto Rs. 7.5 lakh can have 0 tax liability, and the exemption limit can go even higher if you include home loan and mediclaim benefits.

This rebate will provide a tax benefit of Rs 18,500 crore to an estimated three crore middle-class taxpayers comprising self-employed, small business, small traders, salary earners, pensioners and senior citizens.

This innovative income tax comparison calculator allows one to compare tax liability under UPA and Modi Government –

Here are some other economic data points that are forgotten in the churn of the incessant news cycle –

  • Not the first income-tax relief by Modi Govt. –  In their very first budget of July 2014, the income tax exemption limit was raised from Rs 2 lakh to Rs 2.5 lakh, standard deduction limit on investments under Section 80C was raised from Rs 1 lakh to Rs 1.5 lakh. Then in 2017 budget, tax rate for individuals earning between Rs. 2.5- Rs 5 lakh was reduced to 5% from 10%. In 2018, standard deduction of Rs 40,000 was introduced to replace the pre-existing combined transport & medical allowances of Rs. 34,200 per year for which employees & companies had to go through the cumbersome process of submitting & processing bills. And now, full tax rebate for income upto Rs. 5 lakh has been announced.
  • Inflation & fiscal deficit reduced: When Modi took charge, the economy was a wreck – we were still reeling from the mini-crisis of 2013 when rupee had crashed after Bharat’s twin deficits (current account deficit and fiscal deficit) ballooned out of control. Double-digit inflation during UPA-2 has been brought down to an average of 4.6% by this Government. Fiscal deficit has been reduced from around 6% seven years ago to 3.4% today. This was achieved also due to the independent Monetary Policy Committee consisting of RBI and Finance Ministry representatives – another welcome, overdue reform. Federal structure has been boosted with states getting a higher share (42%) of central tax revenue compared to 32% before. All of this also shows just how hollow the authoritarian charge against Modi really is.
  • Significant increase in tax base and tax collections: Critics are asking – how is the Government able to give this tax bonanza to middle class, and the Rs 6000 per annum direct cash transfer to 12 crore small & marginal farmers (which will cost additional Rs 72,000 crore)? Is it being fiscally irresponsible? Short answer – NO. Direct tax collections are up from Rs 6.38 lakh crore in 2013-14 to almost Rs 12 lakh crore, and tax base was up from 3.79 crore to 6.85 crore. GST helped expand the indirect tax base by at least 50 percent, and there was a 71% increase in indirect tax revenue from FY 14 to FY18 – the Tax-to-GDP ratio increased from 10.2 percent to 11.6 percent in that period.
  • Jump in FDI: Bharat has attracted massive amount of Foreign Direct Investment (FDI) during the last 5 years – as much as $239 billion. This period also witnessed a rapid liberalisation of the FDI policy, allowing most FDI to come through the automatic route. Last year, we pipped China in FDI inflows for the first time in 20 years. From being considered to be among the Fragile Five among emerging markets five years ago, the Indian economy has emerged as a top investment destination, with a ratings upgrade from Moody’s Investor Services in 2017.
  • New bankruptcy law is solving NPA mess: The NPA (Non-performing mess) created during UPA era when public-sector banks made massive bad loans to crony capitalists, is now being cleaned up. Insolvency and Bankruptcy Code (IBC) introduced in 2016 has seen around 9,000 cases come up for redressal. Of this, around a fourth were resolved before entering bankruptcy court, leading to a liquidity release of around 1.2 lakh crore. Now, when a loan goes bad, the promoter pleads the bank to not send the case to NCLT (National Company Law Tribunal, which oversees bankruptcy cases), as they have seen prominent companies being wrested from their owners, previously used to walking away from bad debts without major consequences, under the new bankruptcy proceedings. Economic offenders are finally feeling the full brunt of the law.

  • Effective delivery of subsidy, leakage cut: Rajiv Gandhi had famously bemoaned that out of one rupee spent by the government for welfare of the downtrodden, they received only 15 paise. During the mega-loot during UPA years, that trickle might have come down to below 10 paise. But with the universal bank account drive & robust use of the JAM (Jan-dhan account, Aadhar, Mobile) trinity to drive DBT (Direct Benefit Transfer), the Modi Government has made the first serious strides to cut subsidy leakage. In Nov 2017, PM Modi said that use of DBT has removed ghost beneficiaries and helped Government save $10 billion i.e. ~ Rs 70,000 crore. It has also eliminated the ubiquitous middleman as the benefits are now directly coming into people’s bank accounts. The successful ‘Give it Up’ program under which many in the middle class gave up their LPG subsidy so that poor households could receive an LPG connection under Ujwala yojana, showed what can be achieved when there is trust between the citizens and a Government.
  • Infrastructure boom: Highways and village roads are being built faster than ever before, remote corners of the country are being connected as shown by the magnificent Bogibeel bridge, we finally achieved 100% village electrification (18,452  villagers were in the dark when Modi took over) and today around 99% of the 21 crore households in the country have an electricity connection, railways has seen a makeover and organizational restructuring, container transport via inland waterways has finally started, air travel is rising.
  • Ease of doing business: We have jumped an incredible 65 Spots in the World Bank ‘Ease of Doing Business’ ranking since 2014. During UPA-2, we had fallen 8 spots in this ranking

Today, our economy is poised for higher growth – the domestic investment cycle will pick up as the bad debt mess gets cleared and banks start lending again. Tax cuts will mean rise in consumption which will further fuel growth. All this comes at the right time with the China-US trade war opening up a great export opportunity for us. High GDP growth in the 8-10% range, a level above the steady 7% we witnessed in the last few years, is within our grasp.

All these developments on the economic front are over and above the strides in social development, the most successful of which has been the Swachh Bharat Abhiyan. Almost 80 million household toilets are estimated to have been built since Modi’s 2014 pledge to ensure universal sanitation coverage by October 2019 – said to be the greatest toilet-building spree in human history which has improved sanitation coverage from 40% to 90%. Impact of this and the successful Indradhanush vaccination drive has marked a major milestone in reduction of child deaths. The universal health insurance scheme Ayushman Bharat launched last year has got off to a tremendous start & received plaudits from WHO and Bill Gates. We are safer than ever before from terrorism. Our borders are more secure, and for the first time we are hitting back harder at our enemies.

But all this momentum that has been built could easily be lost if we turn apathetic or become complacent and do not cast our vote wisely in the coming 2019 general election. The choice is clear, and the future of our country over the next 25 years is on the line. We just cannot afford to have a repeat of 2004 when we failed to re-relect ABV’s performing government and suffered a wasted decade under UPA 1 & 2.

So make sure your name is there on your constituency’s voting list, register online on if its missing or you have moved cities since the last election, help at least 10 others around you to check their voter status online, and mark the voting date on your calendar once EC announces the dates.

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