What Will Change for the Middle Class as India Looks to Achieve a $5 Trillion Economy Status?

The Finance Minister Nirmala Sitharaman made a startling announcement in the Union Budget 2019 by saying that India is poised for a $5 trillion economy by 2024-25. As of now, India is around a $2.7 trillion economy thanks to the addition of $1 trillion in the last five years. Several economists and trade experts evaluated the possibility of the same. While some expressed confidence, others were a bit doubtful of New Delhi’s assertion. If the assertion does prove true, India will elevate to the 3rd position from 7th in terms of the current dollar exchange rate. This could make India the most sought-after manufacturing destination globally. But what on the ground level?? The Middle Class – that forms the bulk of India’s landscape. How will things change for the Middle Class in a $5 Trillion Indian economy? All that and much more is elaborated in this post.

Acquisition of Low-cost Products

As India is likely to solidify its position as a manufacturing hub globally, there could be mass production of products and goods in the country. The mass production will enable manufacturers to pass on the benefit of lower costs to the consumers. The middle class has been consuming a lot despite not a massive growth in their income, which has lead to their savings dropping by five percent to 17% of the country’s Gross Domestic Product (GDP). In the low-cost scenario, the consumption will continue to grow and add to the country’s GDP.

Jobs Prospects to Brighten

The $5 trillion will mean a huge demand in the economy translating into more jobs for the Indian middle class across various sectors such as online & offline retail, transport, textile, telecom, etc. More jobs will only add to India’s economic growth.

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Salary Likely to be Substantially Higher

More investments will ensure a considerable hike in the salary of experienced professionals across different sectors and industries. As companies benefit immensely from the recruitment of quality and experienced personnel, they may not hesitate bringing on board such individuals even if it comes at the expense of salary hike beyond the industry standards. So all your skills, experience and calibre will get the true value by the time India achieves the coveted $5 trillion mark.

India Could Become a Home to Many Startups

The uptick in demand will encourage most of the middle class people to open their own business firms, which can be a small kirana store, an app-based store or any other. The startup ecosystem will kick in as investors will be prompted to invest in high-valued added firms seeing the surge in overall demand. So all you budding entrepreneurs, you have reasons to smile as India heads to the $5 trillion mark.

Investments to Fetch Higher Returns

As the general business sentiment is set to be positive, there will be vibrancy across different sectors of the economy. The spur in the business activities will increase the margins of the companies, resulting in higher returns for individuals having invested in stocks and mutual funds issued by such firms.

Tax Sops Very Much on the Card

As of now, there’s not much buoyancy in the economy with stalled projects and retardation in investments. Despite that, the Goods and Services Tax (GST) collection recorded over ₹1 lakh crore mark for two consecutive months ending December 2019, according to the data released by the government. The existing dispensation plans to widen the GST net by keeping many companies, who have swayed from the indirect tax regime, in the ambit by enforcing strict regulations.

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With more tax in the kitty due to the improvement in the economic demand, the government will have more room to give tax rebates and bring smiles on the faces of the middle class. Rebates can be in both direct and indirect taxes. For indirect taxes, products and services could move to lower rates. Whereas, the extent of income tax exemption can rise from the existing threshold of ₹2.5 lakh. Plus, there could be lower income tax slabs to benefit the salaried. Many tax-savers could also see the tax exemption threshold rising from the current level.

What Makes the $5 Trillion Statement Relevant?

The statement is relevant in light of the recent developments that have surfaced in India’s economic landscape.

Booster Shot of Corporate Tax Rate Cut

Many doubted India’s ability to achieve the ambitious $5 trillion target by 2024-25 as announced in the Union Budget. But the government had some plans of which the Corporate Tax Rate cut announcement in September 2019 was one of those. The announcement of reducing the corporate tax rate to 17.01%-25% from the previous rate of 29%-35% made Sensex and Nifty shot up by more than 2,000 and 600 points on the day. The spurt has contributed immensely to the surge of Sensex and Nifty by 14.4% and 12%, respectively, in 2019. Even as the economy was struggling with a sub 5% growth in the middle of the year, the bull run of these two indices inspires confidence in India’s march towards the $5 trillion mark.

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The tax rate cut will make manufacturers pass on the lower costs benefits to the consumers. It will also prompt companies to set up new manufacturing plants and create jobs. As India’s corporate tax rate is the lowest in the Asian region, many multinational companies could set their units in India, thereby inviting employment opportunities for the locals.

Growing Considerations on Lessening the Tax Burden on Capital Market Investors

The government is leaving no stone unturned to ensure maximum retail participation in India’s capital market. One way is to reduce the tax incidence on their investments. Murmurs are going in the tax administration that the government could remove 10% tax on long-term capital gains made on equity investments. Considerations are also underway to do away with the Dividend Distribution Tax (DDT).

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