Two myths about the Indian middle class

They sustain a politics which does not disturb the position of the privileged few and deflects the focus from larger issues of economic justice.

The first myth is in invoking the “middle class” as synonymous with income taxpayers, investment gains, and so on. Promoting policies for the middle class, the ordinary Indian, or the common man naturally enjoy broad support. | Photo Credit: Rajanish Kakade

Politics is about who gets what.

This definition of politics goes back to the 1930s political scientist Harold Lasswell but continues to be relevant. In the early days of the Indian republic, a rhetoric of equality prevailed. B.R. Ambedkar warned that political democracy is in danger as long as social and economic life displays large inequalities. The Congress party spoke the language of socialism and equality and the main opposition parties were the socialists and the communists. The rhetoric of equality was betrayed in practice. India failed to build the infrastructure of a welfare state. Universal healthcare and even universal schooling were dismissed as pipe dreams.

Nowadays even the rhetoric of equality has disappeared. In the last Lok Sabha election campaign, both major political parties distanced themselves from any talk about the redistribution of wealth. The debate before and after the Budget scarcely focussed on ideas of equality. Instead, the government, the opposition, and much commentary in the media appealed to the middle class. Finance Minister Nirmala Sitharaman stated her ambition as providing tax relief to the middle class. The opposition attacked the government on this ground claiming that the Budget was overburdening the salaried middle class. The business media, too, focussed on the tax burden of the middle class.

Taxpayers vs Corporates

The opposition and commentators underlined their criticism by comparing the contributions of income versus corporate tax to the Budget. This comparison of taxpayers with corporates and the super-rich is important. The increase in wealth of the super-rich is staggering. Gautam Adani’s wealth, for example, has grown by more than 2000 per cent since 2014. The pre-wedding ceremonies for the Ambani wedding have been estimated at Rs.1,200 crore, more than double the annual expenditure of Tamil Nadu’s breakfast scheme.

Focussing on the super-rich serves two purposes. First, to quote the American bank robber Willie Sutton: “That’s where the money is.” Even minor taxes on the super-rich can yield large revenues. It is true that corporates and the very wealthy often find ingenious ways to hide money in tax havens from Mauritius to Panama. Yet India does not even try. The BJP government discontinued the wealth tax in 2016 and there is no inheritance tax. A proposal to coordinate globally and tax the super-rich was started by the G20 under Brazil’s leadership only after India passed on the G20 leadership.

The second purpose is to curb the power of money. Ambedkar had long foreseen that extreme wealth inequality threatens democratic institutions. His warning could not have been more prescient from electoral bonds, corruption, the closeness of business leaders with politicians, and allegations of crony capitalism, to the recent allegations about conflicts of interests in the Securities and Exchange Board published by Hindenburg Research.

Rich, middle, and poor

Nevertheless, what gets lost in the present debate is another comparison one can draw between fellow citizens. Complaints about tax burdens seek to push for a reduction in direct taxes. The government has made a remarkable U-turn in the light of criticism by effectively lowering the capital gains tax for real estate sales. This benefits those of us who own property as a form of investment. This is a small part of the population. Yet it creates lost revenue for all of us, especially those who most rely on public services.

One place where the money may be missing is the Budget for the Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS). MGNREGS grants workers a legal right to work. Any budgeting should estimate the demand for work since work and payment cannot legally be refused. Still, the government budgeted around Rs.19,000 crore less than what was needed in 2023-24. Underbudgeting for MGNREGS creates delays in payments and makes the scheme less effective as a tool against rural poverty. Yet, despite the popularity of MGNREGS with more than 8 crore workers last year, there was no major outcry and the government has not been forced to correct course.

Workers engaged in desilting work as part of Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS) at Mullapadu of NTR District, Andhra Pradesh. | Photo Credit:  G N RAO

This second comparison reveals the deep asymmetry in a politics receptive to the interests of a privileged few and oblivious to the interests of the majority. What sustains this asymmetry are two myths about the middle class.

What is ‘middle’ about the middle class?

The first myth is in invoking the “middle class” as synonymous with income taxpayers, investment gains, and so on. Promoting policies for the middle class, the ordinary Indian, or the common man naturally enjoy broad support. The framing suggests that most people will benefit. They are neither favouritism for the rich nor special support for the poor. Almost everyone, regardless of their actual economic situation, identifies as middle class. The problem is that taxpayers and much of those called middle class are actually privileged. The label “middle class” serves to hide the privilege.

If you are reading this, it is unlikely that you are middle class. Less than 10 per cent of Indians speak English and only a few lakhs speak English as their first language. The last National Family Health Survey reported that only a third of women between 15 and 49 had ever used the Internet. Less than 10 per cent of the workforce works in the formal sector. Only slightly more than 2 per cent of adults paid any income tax at all. While this number is lower than it ought to be due to tax evasion, it does not change the fact that most Indians do not pay taxes simply because they earn less than the minimal taxable income.

By contrast, the last estimates for poverty estimate that around one in five Indians live in poverty. While there is much debate on how poverty has evolved, the overall trend is not encouraging. The sharp rise in poverty during the pandemic showed how many Indians are one shock away from dropping into poverty. This experience is much more representative of ordinary Indians than the depictions of the middle class in the business media and in the halls of Parliament.

Tax burden

The second myth is the idea of tax burden. Speaking of a tax burden suggests that all of us own our pre-tax income and the government is taking away some of our property. The government is entitled to take away something that we own to fund valuable services. In doing so, it should ensure that the burden of funding the budget is fairly distributed. Arguments for lowering income taxes often invoke the idea that too much of the burden is concentrated in a few taxpayers.

The problem with this picture is that it assumes that we own money independently of the government first and then the government appears and takes it. But this assumption is incoherent. Assume for a moment that there was no government. All of a sudden, the little pieces of paper in our wallets would not be money, the digital records of our bank would only be digits, there would be nothing like shares, and the documents that make us home or land owners would disappear.

Money and property rights are defined by a legal and economic system. This system includes, among many others, the laws of property, land, and taxation. So, income tax is not a constraint on something you already own but rather a part of the system that defines what you own. This shifts the question. We should ask whether this overall system of property rights is fair. Once we do this, we move away from the narrow question of how the tax “burden” is distributed to the larger question of the fairness of the economic system. With this change in perspective, we can see how those rich enough to pay income tax enjoy plenty of subsidies, how spending priorities are tilted in their favour, and how the tax rates are much lower than in genuine welfare states.

The two myths of the middle class sustain a politics that does not disturb the position of the privileged few. They reframe policies favouring the few as “middle class” and deflect the focus from larger issues of economic justice. This is the politics of who gets what—it protects the haves from the have-nots. But once we move past the myths of the middle class, there might just be room for egalitarian politics—not just in rhetoric but also in reality.

Bastian Steuwer is an assistant professor of politics at Ashoka University. Views are personal.