The middle class had high expectations from Budget 2026 amidst mounting economic pressures - rising cost of living, stagnant salary hikes, widespread IT layoffs, and negative stock market returns. However, those expectations have been comprehensively dashed. Finance Minister Nirmala Sitharaman's budget speech offered little to no respite for the salaried class that forms the backbone of India's consumption-driven economy.
After the major tax relief in last year's budget, when tax-free income was raised from ₹7 lakh to ₹12 lakh, taxpayers were hoping for further relief. Many anticipated an increase in the standard deduction from ₹75,000 to over ₹1 lakh, which would have provided much-needed breathing room. However, given the global economic headwinds, tariff impositions by the United States, and the government's commitment to a tight fiscal deficit path, no such relief was forthcoming.
The market's reaction was swift and brutal. The stock markets crashed, with the Nifty 50 falling 2.33% and the Sensex plummeting by over 1,500 points. This decline reflects not just investor disappointment but also deeper concerns about domestic consumption trends and the overall health of the economy.
The government's argument is that last year itself, Rs. 1 lakh crore bonanza was given to taxpayers, and that such benefits cannot be given every year. The GST collections have also been impacted by the recent cuts.
The Consumption Conundrum
Unlike China, India is not an export-oriented economy. It is largely dependent on domestic demand to fuel growth. Private Final Consumption Expenditure (PFCE) accounted for a substantial 61.5% of GDP in the first half of FY 2025-26. This makes consumption the single most important driver of economic growth.
With private investment stuck at roughly 12% of GDP for nearly a decade, it is consumption that has been fuelling the economy. For consumption to remain robust, the middle class needs to have more disposable income - money left in their hands after taxes. Unfortunately, the budget has failed to address this critical need.
The problem is compounded by the fact that for roughly five years - from approximately 2019 to 2024 - nominal wage growth of just 1-5% was insufficient to keep up with inflation. This resulted in a decline in real earnings for many in the formal sector. When wages don't keep pace with prices, purchasing power erodes, and consumption suffers.
The GST 2.0 Illusion
According to LocalCircles, India's biggest tax reform since 2017 - GST 2.0 - promised simpler tax slabs, lower prices, and relief for households. However, their survey reveals that nine out of ten Indians haven't seen any real benefit in essentials like food and medicines.
So, where did the relief vanish? The benefits appear to have been absorbed by retailers keeping their margins intact, unchanged MRPs (maximum retail prices), and uneven pass-through of tax cuts to consumers. Meanwhile, while cars and appliances show clear tax cuts in their pricing, daily household bills remain stubbornly unchanged. The relief that was supposed to reach the common man has somehow evaporated in the supply chain.
The Tax Burden Anomaly
Perhaps the most striking feature of India's tax structure is the continuing anomaly of personal income tax collections being higher than corporate tax collections. In a country where merely 2% of the population pays taxes, this highlights a serious concern. Of the total receipts of the central government, the proportion of personal income tax collections is slated to increase from 26.5% in FY 2024-25 to 27.4% in FY 2026-27 - rising from ₹12.35 lakh crore to ₹14.66 lakh crore.
During the same period, corporate tax collection is expected to rise from ₹9.86 lakh crore to ₹12.31 lakh crore. This means personal income tax collections are projected to be 18% higher than corporate tax collections. This disparity raises fundamental questions about equity and the distribution of the tax burden, given that even the stock markets have delivered zero returns last year and FD rates have hit significantly low levels.
While corporations - who pay tax on profits, not income, like individuals do - contribute less to the exchequer, individual taxpayers, struggling with inflation and stagnant wages, are being asked to shoulder an ever-growing share of the tax burden. This imbalance is unsustainable and unfair, particularly when the middle class is already under significant financial stress.
The Way Forward
The government faces a difficult balancing act. On one hand, there are legitimate concerns about fiscal discipline, especially in the face of global economic uncertainty and trade tensions. On the other hand, neglecting the financial health of the middle class - the very engine of domestic consumption - could prove counterproductive in the long run.
As India navigates these choppy economic waters, policymakers must recognise that a thriving middle class is not a luxury but a necessity. Without putting more money in the hands of consumers, sustaining consumption-led growth will become increasingly challenging. The middle class has been doing the heavy lifting for far too long. It's time for policy to recognise and reward that contribution, rather than adding to the burden.
(Amitabh Tiwari is a political strategist and commentator. In his earlier avatar, he was a corporate and investment banker)
Disclaimer: These are the personal opinions of the author
