India’s tax policies have come under fire from startup founder Akshat Shrivastava and former Infosys CFO Mohandas Pai, who point to the mounting strain on the country’s middle class. They argue that over-taxation and a lack of bold reforms are stifling economic growth and threatening India’s competitive edge on the global stage.
With rising tax collections, declining savings, and muted consumption, Shrivastava and Pai’s concerns reflect a growing unease among the middle class, a segment historically vital to India’s economic success.
Taxing the Middle Class: A Short-Sighted Strategy
Shrivastava, founder of Wisdom Hatch, shared his criticism in a recent post, highlighting how nations like China, the US, and Singapore are advancing with bold strategies while India risks falling behind.
“In China, even an average city outpaces Indian metros in infrastructure,” Shrivastava remarked. He added that the focus in nations like the US is on attracting talent to build businesses, while Singapore’s economy is so advanced it rejects multimillionaires from settling.
Shrivastava’s Core Concerns:
- Over-Taxation: A heavy tax burden on the middle class to fund subsidies.
- Missed Opportunities: Lack of focus on critical areas like export promotion, infrastructure, and tourism growth.
- Economic Stagnation: Neglecting reforms in favor of short-term policies that burden taxpayers.
Shrivastava’s sentiment was encapsulated in his sharp critique:
“Our game plan seems to be: tax people to death, use their money to support freeloaders, and then expect them to stay and build the nation.”
Rising Tax Burden: The Data
Former Infosys CFO Mohandas Pai echoed Shrivastava’s concerns, pointing to the sharp rise in individual tax collections.
- Tax Collection Growth:
- FY21: ₹4.8 lakh crore
- FY24: ₹10.4 lakh crore (114% increase in three years)
- Subsidies vs. Middle-Class Benefits:
- Government spends over ₹9 lakh crore on subsidies annually, primarily benefiting the bottom 60%.
- Middle-class taxpayers bear the brunt, contributing disproportionately while receiving minimal relief.
Calls for Bold Reforms
Pai outlined several measures to alleviate the middle-class burden:
- Revamping Tax Slabs: Lower tax rates for honest taxpayers to ease their financial strain.
- Resolving Tax Disputes: Unlocking ₹12.5 lakh crore stuck in litigation to stimulate economic activity.
- Ending Tax Harassment: Delivering on the promise to stop “tax terrorism,” a long-standing demand of taxpayers.
In his public plea, Pai warned that ignoring the middle class could lead to widespread frustration:
“Today, the middle class is getting poorer, ignored, and very, very angry.”
Economic Impact: A Middle-Class Squeeze
The rising tax burden has exacerbated financial challenges for India’s middle class, as highlighted in a report by Marcellus Investment Managers:
Key Indicators of Middle-Class Strain:
- Job Losses: Automation and slowing corporate growth are reducing employment opportunities.
- Declining Savings: Household savings have hit a 50-year low, with rising household debt.
- Muted Consumption: Reduced disposable income is dragging down consumer spending.
The effects are visible in sectors like fast-moving consumer goods (FMCG), where growth has slowed dramatically.
- Nestlé India MD Suresh Narayanan:
- Growth in the food and beverages sector has declined to 1.5%-2%, from double-digit levels.
- Hindustan Unilever CEO Rohit Jawa:
- Urban demand, particularly in larger cities, remains muted due to inflation and shrinking discretionary income.
India Risks Falling Behind
Shrivastava’s warnings extend beyond taxation to highlight missed opportunities in other areas:
- Tourism: Countries like Thailand and Vietnam have surged ahead in attracting tourists, with India lagging.
- Infrastructure: Indian metros are falling short compared to average cities in China.
- Export Growth: Lack of focus on boosting exports hinders India’s competitiveness on the global stage.
Conclusion
The concerns raised by Akshat Shrivastava and Mohandas Pai reflect deep-seated issues with India’s economic policies. Over-taxation of the middle class, coupled with a lack of bold reforms, threatens to derail the nation’s growth trajectory.
For India to maintain its competitive edge and address the frustrations of its middle-class taxpayers, policymakers must prioritize sensible taxation, infrastructure development, and export promotion. The upcoming Budget 2025-26 will be a critical test of the government’s willingness to address these challenges.
Disclaimer: This article is for informational purposes only and does not constitute financial advice. Readers are encouraged to consult with financial experts before making decisions based on tax policies or economic trends.
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