India's true middle class is the tax-paying elite; the bottom half needs budget focus on jobs, free education/health, PDS-MSP food security, and state transfers—not tax cuts
As of today, the Indian population stands at more than 145 crores. Given the labour-force participation rate (LFPR) of 42.3 percent (current weekly status) in 2023-24, according to the Periodic Labour-Force Survey (PLFS), the size of the labour force (those willing and able to work) stand at more than 61 crore. In the same survey, the worker population ratio, i.e., those who are employed as a proportion of the population, was 40.2 percent yielding a workforce of more than 58 crores in India. The difference between the two, i.e. approximately 3 crore people are unemployed—people who were available for work but could not secure even one hour of employment in the last seven days preceding the survey. Unit-level data analysis of the latest PLFS 2023-24 reveals stark income disparities. Only 22 percent of the labour force in India earned more than INR 15, 000 a month, on average, while 27.5 percent earned less than or equal to INR.100 a day. Almost 55 percentearned less than INR 300 per day or INR 9,000 per month to support their families. Thus, at least half the Indian labour force earns less than 10,000 per month in 2025-26.
In 2024, the then Minister of State for Labour and Employment, Shri Rameswar Teli, informed the nation that the national-level minimum wage was set to be INR 176 per day in 2017, and it has not been revised since then. Adjusted for combined consumer price indices, this equates to INR 251 in 2024-25. Even at the original INR.176 threshold, more than 35 percent of the labour force earned less than that according to the 2023-24 PLFS data; 21 percent of male and 67.5 percent female labour force earned below this figure. The rural-urban gap is also clearly visible: 41 percent of rural and 21 percent urban labour force earned below INR 176 a day. If we consider INR 251 a day as the floor income, almost half of the aggregate labour force earns less than or equal to that.
The top 10 percent of the workforce is earning much higher than the average income, while the earnings of the bottom 50 percent labour force have been very low.
In Chapter 12 on ‘Employment and Skill Development’ of this year’s Economic Survey (2025-26), ‘getting skilling right’ has been emphasised more than the ‘existential priorities’. The Economic Survey of 2024-25 (of the Ministry of Finance, GoI) has mentioned that the average income of casual workers has been INR 418 a day or INR 12,540 per month, that of the self-employed people has been INR 13,279, and that of the regular salaried employees has been INR 20,702 in 2023-24. However, the top 10 percent of the workforce is earning much higher than the average income, while the earnings of the bottom 50 percent labour force have been as low as described above. The distribution of income in the country will become clearer from the earnings of the top 10 to 15 percent of the labour force from the available income tax data.
A closer examination of the income tax return statistics for the assessment year 2023-24 showcases that nearly 8 crore people filed their returns. About 1 crore individuals reported an income of less than INR 2.5 lakh per annum or around 21,000 per month. Direct tax evasion is possible; however, only speculations can be made about the number of evaders. According to the Income Tax Department of the Government of India, approximately 2.35 crore taxpayers paid taxes but did not file returns for AY 2023-24. Adding them to the roughly 7 crore people who filed returns and earned more than INR 2.5 lakhs in 2023-24, the total number of people earning more than INR 21 thousand per month becomes 9.35 crore. This is less than 6.5 percent of the total population and approximately 15 percent of the labour force in India.
The ‘middle-class,’ actually comprises the top 10-12 percent population of the country, while the rest earn too little to owe direct tax.
This non-exempt group is referred to as the ‘tax-paying middle-class’ in the general budget discussions in the mainstream media. However, in reality, they belong to the top decile of the country. With the basic exemption limit now at INR 4 lakh. Moreover, there could be more than one earning members in a family, who pay direct tax. So, this ‘middle-class,’ actually comprises the top 10-12 percent population of the country, while the rest earn too little to owe direct tax. Wealthy farmer households, who are exempted but rich, will be approximately 50 lakhs (according to the private ICE 360-degree survey). Even if all these possibilities are incorporated, the direct tax-payer class cannot exceed the top 15 percent of the population, in any case. This is why the class perspective is so important for policy formulation in a country like India.
Consider now the bottom half of the population of India. An efficient implementation of a 125-day of employment guarantee (under the Viksit Bharat – Guarantee for Rozgar and Ajeevika Mission (Gramin) (VB-GRAMG), earlier MGNREGA scheme) at the existing wage rates from INR 241 in Arunachal Pradesh and Nagaland to INR 378 in Goa and INR 400 in Haryana would substantially boost the purchasing power of the ruralworkforce. This demand-based scheme should extend to the urban and suburban areas, too. Since the state governments are supposed to share 40 percent of the expenditure under this scheme now, the State exchequers should be strengthened through larger centre-to-state transfers. Also, the central government should allocate sufficient funds in the Union Budget for this scheme to make it demand-driven in a true sense.
Cash transfer schemes now operate in nearly all states. However, in a vast country like India, providing free and quality education and health services at all levels to ensure better human development is imperative. The gender budgeting, along with a larger budget for minorities and socially deprived sections of the population, is also extremely important from the point of view of human development. Accordingly, there should be provisioning in the Union Budget as well as in the state budgets. A major share of the human development-related expenditures has to be incurred by the state governments, given the constitutional underpinnings. Therefore, a larger transfer of resources to the States is extremely important for human development in the country.
The public distribution system (PDS), along with the farmers’ protection through providing minimum support price (MSP) are essential for ensuring food security in the country. The gap between the MSP and the PDS prices effectively constitutes the food subsidy. Given the extremely low income of the bottom half of the population, the priorities should be set in the budget, without undermining the other considerations. A reduction in the GST rates will give some relief to the common people. However, the revenue receipts of both the state governments and the Union government may also be adversely affected. Improving tax compliance at current rates through efficient tax administration and a wider tax information network offers a better path forward.
It is not easy to strike a balance, given the multifaceted challenges. The importance of larger capital expenditures in infrastructure and that in defence is also undeniable. More active export promotion in the face of higher US-tariff rates should also be prioritised. However, the availability of fiscal space is also a serious concern. The possibilities of mobilising additional resources through direct taxes like the wealth tax and property inheritance tax (only for the super-rich) may be explored (like many other developed countries). But, the vulnerable bottom half of the population must not be forgotten, at any cost, in our policy considerations, keeping the Sustainable Development Goals (SDG 2030) and the idea of Viksit Bharat in mind.
Surajit Das is an assistant professor at the Centre for Economic Studies & Planning, Jawaharlal Nehru University, New Delhi.
Preksha Mishra is an assistant professor at the Ramanujan College, University of Delhi.
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Surajit Das is an assistant professor at the Centre for Economic Studies & Planning, Jawaharlal Nehru University, New Delhi. ...
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Preksha Mishra is an assistant professor at the Ramanujan College, University of Delhi. ...
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