Union Budget 2025: Modi govt bets big on middle class, with a political message

Finance Minister Nirmala Sitharaman brought smiles to the middle class with her comprehensive tax relief, as those earning Rs 12 lakh per annum will no longer have to pay any tax, while others also get tax relief. She responded to the voices on the ground, as the middle class—who had supported Narendra Modi through three Lok Sabha elections— was desperate for relief from rising inflation and high taxes.

With her comprehensive changes, Sitharaman put more money in the hands of salaried people, hoping they would spend it, rather than save, to boost consumption and, in turn, the economy. "We are responding to the voice of the people. Ours is a very responsive government," Sitharaman said at the post-budget press conference. "The new income tax bill will be brought next week in Parliament." The bill aims to overhaul the 1961 Income Tax Act making it simpler and in tune with the times.

These tax changes mark the biggest relief to the salaried class in the 11 years of Modi’s government, addressing one of the biggest grievances on the streets: high taxes. Previous budgets focused on the poor, the marginalised, and even the corporate sector, which received tax relief in 2019. However, the middle class rued not receiving any benefits despite being the primary taxpayers.

Sitharaman had to listen to these concerns and even face criticism from party supporters. She has now answered them. "May Goddess Laxmi bless the middle class and the poor," Modi had said at the start of the budget session. Sitharaman has certainly endeared herself to the middle class by passing Laxmi's blessing to the people.

In economic terms, what the government has done is bet on the middle class by giving them more money to spend. In 2019, the government had given similar relief to the corporate sector by cutting taxes, but the private sector focused more on increasing profits than on investing. Now, when the middle class spends, the government hopes that relief will be recouped through indirect taxes.

So, can the middle class do what the private sector failed to? We’ll know in a few months.

Budgets often carry an underlying political message, and this one is aimed at the vocal, opinionated middle class. The aspirational class has been given a boost just days ahead of the Delhi elections, where the restless middle class was looking for a positive signal to guide their electoral choice. The ruling AAP government in Delhi may face a stiff challenge from the BJP when voters cast their ballots on February 5.

Finance Minister Sitharaman also created a record by presenting her eighth consecutive budget. But how does this budget impact the elections this year? Two politically crucial states, Delhi and Bihar, will go to the polls.

The Bihari flavour was especially pronounced in the budget. In a symbolic gesture, Sitharaman wore an off-white sari adorned with Madhubani paintings featuring fish motifs—symbols of prosperity and abundance. Elections in Bihar are scheduled for October-November this year, and Sitharaman announced several key projects for the state, including the development of greenfield airports, the establishment of a new food technology institute, the creation of a board for the development of fox nuts (makhana), and the expansion of IIT Patna.

In Bihar, the JDU-BJP alliance is currently in power. The support of the JDU was instrumental in forming the NDA government at the Centre, with parties such as Nitish Kumar’s JDU, Chirag Paswan’s LJP (RV), and Jitan Ram Manjhi’s Hindustan Awam Morcha lending their backing. These announcements are aimed at strengthening the alliance ahead of the polls and solidifying its campaign in the politically important state.

Budgets themselves often play an enabling role for political campaigns. We’ll have to wait and see how the budget resonates in these election states, though other states may argue they haven’t received much attention.

Even Congress seems to agree that the budget’s focus was on Delhi and Bihar elections. “The takeaway from Budget 2025-26 is that the BJP is wooing the tax-paying middle class and the Bihar electorate. These announcements will be welcomed by the 3.2 crore tax-paying middle class and the 7.65 crore voters of Bihar. For the rest of India, the Finance Minister had no more than soothing words,” former Finance Minister P. Chidambaram said during a press conference at the party office.

Chidambaram argued that revised revenue receipts are lower by Rs 41,240 crore, and revised net tax receipts are lower by Rs 26,439 crore. “On the expenditure side, total expenditure has been cut by Rs 1,04,025 crore, and capital expenditure has been cut by Rs 92,682 crore. Of this cut, the sectors that have suffered are health, education, social welfare, the North East, and agriculture,” Chidambaram said.

The Congress leader further argued that Sitharaman should have allowed private investment to drive growth. “The FM is walking the worn-out path. She is not willing to break free, as we did in 1991 and 2004. She is not willing to deregulate. She is not willing to get out of the way of the people, especially the entrepreneurs, MSMEs, and start-ups,” he added.

Sitharaman responded by saying there was no reduction in public spending on capital expenditure, and fiscal prudence was being maintained. She also hit back at Congress, pointing out that salaried individuals had faced higher taxes in the past. “Anyone earning Rs 8 lakh in 2014 is now getting one lakh more due to tax relief,” she said. “For those earning Rs 12 lakh, the tax paid was Rs 2 lakh in 2014, but now they will pay no tax, thanks to the new relief.”

She further explained that those earning Rs 24 lakh in 2014 would now have Rs 2.6 lakh more in their pockets due to the new changes. Under the new tax regime, over one crore people will pay no tax on earnings up to Rs 12 lakh. The government hopes that, with more benefits under this regime, more taxpayers will shift in the coming fiscal year. Already, 75 percent of taxpayers have switched to the new regime.