THE MIDDLE CLASS DELUSION

There is nothing shocking about the news item. What you need to do is parse the
statistic that our news media is too lazy to do. Let's start from here:
Less than 3 percent file income tax return in India
Only 3.5 crore people, or 2.89 percent of the country's total population of more
than 121 crore, file income tax return in India
Out of the 121 crore people might be your 1 year old son and a 95 year old
grandma who might be earning no income. Neither needs to file taxes. In fact,
there are only 47 crore people who are actually working. India has a workforce of
47.41 crore: Government
Of these almost half are employed in agriculture. That is pretty much exempt
from income tax. Our nation, like many others, has an idealistic attitude towards
agriculture - a hangover from the agricultural past. We somehow assume that
farmers are doing a more important job than rest of us.
In any case, that leaves only about 23 crore workers who work in factories and
the service sector.
To pay income tax you need to be earning Rs. 2.5 lakhs or more per year.
Because, we don't want to tax the poor. Now, how many of the workers do you
see around you make Rs. 22000 or more per month? How about your maid? Not
likely. How about the assistant sitting in the shop? Not likely.
This is a slightly old data, but what it shows is that the top 20% people even
make far less than Rs. 2.5 lakhs/year.
Of the 24 crore factory & sector workers, well less than 20% might actually be
making Rs. 2.5 lakhs or more per year. That number is not far more than 3.5
crore people who are filing the taxes.
Learn to look beyond the screaming TV reporter. Visit outside of a major metro
areas and see how many make Rs. 25k or more per month on salaries. That is
not really a big percentage of the total population [that includes kids, students,
unemployed, old aged, homemakers etc]. That percentage is unlikely to be more
than 4%.
However, this is not a small number in aggregate. We have more income tax
payers than say UK or Germany. And together they generate Rs. 3.5 lakh crores
in revenue to the government
This is the second biggest source of income to the Union Government [after
corporate taxes] and pays way more than what the government spends on
defence, education and health put together. It is no small amount.

I'm not sure what kind of economics people are taught in India. Our total GDP [in
non-technical terms it is the sum total of all the incomes of all Indians] is about
Rs. 125 lakh crores. No one thinks think it is an underestimate [in fact, some
economists even think that this might be overestimating a bit due to the recent
changes in calculation]. Think of that number for your basic math and before you
make a statement that a lot of people are making Rs. 25L or more [as seen in the
comments].
Let's say we have 5 crore people who earn Rs. 25lakhs. That itself would be Rs.
125 lakh crores with the rest 115 crore people arming Rs. 0. It is absurd. In short,
the number of people earning Rs. 25 lakhs or so will be way, way less than 5
crores. Once you also account that the billionaires at the top get a way bigger
chunk, you can shrink the fairly rich [Rs. 25L+] to under 1 crore people. Then
there might be about 4 crore people who might be earning Rs. 5-25 lakhs. Thus,
our taxable pool is probably only 5 crore people and if we remove those with
agricultural income, the really eligible taxpayers might not more than 4 crore
people. This is also consistent with the economic survey [since the survey is a
few years old, adjust for inflation]. It says 3.4 crore households are actually at or
above the middle class [the tax paying class].
Sure, there is tax evasion, but nothing close to what our citizens imagine [often
they are fed with some unrealistic "black money" numbers by our vote seeking
politicians].
And while the middle class often whines that they pay most of the taxes, they
often ignore that they also get the larger share of the government benefits.
Almost all of the government salaries and pensions [accounting for a huge
portion of the spending] goes to the middle class. The metro railways where the
government is spending tens of thousands of crores are not for the rich and not
for the poor. It is for the middle.
Same for all the spending on IITs, IIMs & other higher education institutions.
Middle class occupations like IT services are also very lightly regulated by the
government and government/PSU jobs have some of the highest perks and
pensions. Most of the tax payers are from these two segments - that are
otherwise treated well by the government. At some point, the middle class has to
realize how powerful they are & how much the government spend on them. The
government doesn't spend much for the rich class [even with all the tax evasion,
a rich person pays more in indirect taxes than the benefits he/she receives] and
didn't spend much on the poor class either.
A while ago someone asked why Indian government's universities are world class
[IITs, IIMs, NITs, AIIMS] while the government's schools are world's worst. The
simple answer is that while the universities are targeted at the Indian middle
class, the government's schools are targeted at the poor.
We are a country where the government runs subsidized airlines & hotels [again
for the middle class], while the basic health facilities for the poor are appalling. A

poor person driving a TVS-50 moped have to pay premium fuel [petrol] while a
middle class guy in his Innova pays for the subsidized diesel.
While the Indian government always claims to be pro-poor, it was always the
middle class that got the best part of the government [and when the government
schools are used by the middle class - such as the Kendriya Vidyalayas - the
government can surely run it excellently].
Even with all that, middle class leads the whining about how the government is
spending so less on them.
Less than 10 crore people of India are middle class or above. 90% of India is
below that class. Is the government fairly spending 90% of its budget on the
poor? Not anywhere close. Breaking Down Indian Government's Expenses.
Our government heavily subsidizes household electricity; however most of the
poor don't have access to reliable electricity [thus the benefit primarily reaches
the middle class]. On the other hand, the factories are heavily charged for
electricity - hurting not just the rich owner, but the poor factory worker, who now
has few jobs, due to Indian factories not being competitive in pricing.
Our government subsidizes banking, but most poor are unbanked. BSNL and its
predecessors subsidized telephones for decades, but most poor had no access to
phones until a decade ago. Yeah right, for the poor.
Our government heavily subsidizes universities, but most poor cannot get that
far as the elementary schools have very poor investments. Compare these two
numbers. Government expenditure per tertiary student as % of GDP per capita
(%) vs. Government expenditure per primary student as % of GDP per capita (%)
Don't worry about the units and for now focus on just the raw numbers in both
these pages. In developed countries [such as Australia and US], the spending on
tertiary [university] education per student is same as primary education. In India,
the former is 6.5 times more than the latter. In short, the poor guys going to
government schools get far less spent on them than the middle class guys going
to government universities.
That is the truth the middle class refuses to acknowledge.
When the government is spending more on metro railways, expressways,
superfast trains and new airports [mostly benefitting the middle class] we don't
acknowledge how much we get more than the poor. On the other hand, the
village roads & passenger trains have not improved much over the years and the
poor villagers are stuck like deers in headlights unable to cross these new
expressways with the middle class zipping past them.
The next time you pay income taxes, realize how much you as the middle class
get the benefit of the central government far more than any other class