Budget 2026: A Fiscal Blueprint That Forgot the Middle Class
- Sakshi Mishra
- Feb 4
- 15 min read
When Finance Minister Nirmala Sitharaman presented the Union Budget 2026-27 in Parliament last week, her near-dismissive response to questions about middle-class relief spoke volumes about whom this government considers when drafting fiscal policy. Her reaction, caught on camera and now viral on social media, suggested a momentary lapse where she appeared to have genuinely forgotten that India's middle class the backbone of tax revenue and consumption even exists. This moment has crystallized growing concerns that India's budgetary framework has become a system designed by the wealthy, for the wealthy, where the (the king's needs) override the struggles of ordinary citizens.
The Budget 2026 allocates a total expenditure of thirty-four point seven three lakh crore rupees, representing a modest increase of seven point eight percent over the previous year's revised estimates. Of this, capital expenditure stands at eleven point eleven lakh crore rupees, marking the government's continued emphasis on infrastructure development. Tax revenue projections have been set at thirty-eight point three one lakh crore rupees, with the fiscal deficit targeted at four point four percent of GDP. On paper, these numbers suggest fiscal prudence and growth-oriented allocation. In reality, they reveal a profound disconnect between policy priorities and the daily economic pressures facing middle-class households and the poor.The most glaring omission in Budget 2026 is any meaningful relief for the middle class. Income tax slabs remain unchanged from the previous year, with the standard deduction under the new tax regime held at seventy-five thousand rupees. There is no increase in the Section 80C limit for tax-saving investments, which has remained frozen at one point five lakh rupees since 2014, despite inflation eroding purchasing power by over forty percent during this period. The tax exemption limit for house rent allowance has not been revised, nor have limits for medical reimbursements or leave travel allowances been updated to reflect current costs. For a salaried individual earning eight lakh rupees annually solidly middle class in urban India the effective tax burden when accounting for GST on all purchases, property taxes, and other levies now exceeds forty percent of income, yet the budget offers no acknowledgment of this reality.
Compare this with Budget 2014-15, presented by then-Finance Minister Arun Jaitley shortly after the Modi government came to power. That budget raised the income tax exemption limit from two lakh rupees to two point five lakh rupees, increased the investment limit under Section 80C from one lakh rupees to one point five lakh rupees, and provided various deductions that offered tangible relief to middle-class taxpayers. The stated philosophy was "minimum government, maximum governance" with emphasis on empowering citizens economically. Budget 2018-19 introduced standard deduction of forty thousand rupees for salaried class, replacing medical reimbursement and transport allowance, and increased health insurance deduction limits to fifty thousand rupees for senior citizens. Even these modest measures are absent from Budget 2026.
Budget 2019-20, presented after the second Modi victory, offered more substantial changes by introducing a new simplified tax regime with lower rates but fewer exemptions. For those earning between five lakh and seven point five lakh rupees, effective tax savings were promised, though the actual benefit proved marginal once the loss of deductions was factored in. Budget 2020-21, presented during the COVID-19 pandemic, focused heavily on healthcare and infrastructure but again offered little direct relief to middle-class taxpayers facing job losses and salary cuts. The pandemic budgets of 2021-22 and 2022-23 emphasized economic recovery through capital expenditure but maintained the pattern of extracting maximum revenue from the salaried middle class through unchanged tax provisions even as their economic security deteriorated.
Budget 2023-24 modified the new tax regime by increasing the rebate limit to seven lakh rupees, meaning those earning up to this amount would pay zero tax if they opted for the new regime without exemptions. This was projected as a major middle-class benefit, but critics pointed out that anyone using deductions for home loans, insurance, or retirement savings would still find the old regime more beneficial, and those earning above seven lakh rupees received no relief whatsoever. Budget 2024-25 made the new tax regime the default option and slightly adjusted slabs, but provided no relief to those in higher income brackets. Budget 2025-26 was similarly disappointing, prompting widespread middle-class protests on social media about being the "milch cow" of government revenue.
Budget 2026 continues this trajectory. The allocation to welfare schemes has increased by nine percent, with significant funds directed toward rural employment guarantee schemes, free food grain distribution, housing subsidies for the poor, and direct cash transfers under various programs. These are important and necessary expenditures for addressing poverty, but the budget makes no acknowledgement that middle-class families are also struggling with inflation, healthcare costs, education expenses, and housing burdens. The implicit message is clear: if you are poor enough to qualify for subsidies or wealthy enough to benefit from corporate tax cuts and capital gains provisions, the budget has something for you. If you are middle class, earning enough to be taxed heavily but not enough to build wealth, you are invisible.
The question of whether India's budgets are designed for the middle class, the poor, or the wealthy can be answered by examining expenditure patterns and revenue sources. Social sector spending, including rural development, agriculture, food subsidies, and welfare schemes, accounts for approximately thirty-eight per cent of total expenditure in Budget 2026, suggesting significant attention to the poor. However, the quality of implementation, leakages in subsidy delivery, and the actual impact on poverty reduction remain subjects of debate. Infrastructure spending at thirty-two per cent of total expenditure benefits all classes theoretically, but the immediate gains accrue more to contractors, large corporations, and the wealthy who can afford to invest in associated opportunities.
Defence expenditure has been allocated six point two one lakh crore rupees, representing a thirteen per cent increase and consuming approximately eighteen per cent of total expenditure. While national security is paramount, questions arise about procurement inefficiencies and cost overruns that drain resources that could address social needs. Interest payments on accumulated debt consume three point four two lakh crore rupees, nearly ten per cent of the budget, representing the cost of past fiscal indiscipline. Subsidies across food, fertiliser, and petroleum total four point one eight lakh crore rupees, about twelve per cent of expenditure, with questions about their efficiency and whether they truly reach intended beneficiaries.The revenue side of the budget reveals who actually funds government operations. Direct taxes, primarily income tax paid overwhelmingly by the salaried middle class, are projected at sixteen point six five lakh crore rupees, representing forty-three per cent of gross tax revenue. Corporate tax collections stand at nine point two three lakh crore rupees, just twenty-four per cent of gross tax revenue, despite Indian corporations reporting record profits. Indirect taxes through GST, customs, and excise duties total twenty-one point eight seven lakh crore rupees, constituting fifty-seven per cent of gross tax revenue. Since indirect taxes are regressive hitting the poor and middle class proportionately harder than the wealthy the overall tax structure extracts maximum revenue from those least able to bear the burden while providing maximum benefits to those who need them least.When Finance Minister Sitharaman was asked during her post-budget press conference what specific provisions in Budget 2026 addressed middle-class concerns, her response was telling. After a brief pause, she mentioned the continued infrastructure spending that would create jobs and the unchanged tax regime that provided "stability." When pressed specifically about tax relief, deduction limit increases, or measures to address the healthcare and education cost burden on middle-class families, her somewhat dismissive reply suggested these were not priorities. Her body language and tone conveyed what her words did not explicitly state: the middle class, as a policy consideration, had simply not been at the forefront of mind when designing this budget. This was not malicious neglect but something arguably worse genuine forgetfulness that an entire socioeconomic class exists between the subsidy-receiving poor and the wealth-accumulating rich.
This reflects a broader philosophical shift in how India's political economy operates. The budget has become a tool for maintaining political coalitions rather than promoting economic equity. The poor must be kept placated with subsidies and welfare schemes that ensure votes, even if these schemes do not genuinely lift them out of poverty. The wealthy and corporate India must be kept satisfied with tax concessions, regulatory benefits, and infrastructure that enhances their profit-making capacity, ensuring continued campaign funding through mechanisms like electoral bonds. The middle class, meanwhile, is taken for granted. They will pay their taxes because they have no choice. TDS and advance tax mechanisms ensure compliance. They will vote based on identity politics and nationalism rather than economic self-interest. They can be safely ignored because they lack both the desperation of the poor and the political influence of the rich. Education spending in Budget 2026 stands at one point two five lakh crore rupees, representing merely three point six per cent of total expenditure. This is embarrassingly low by international standards and represents a slight decrease in real terms when adjusted for inflation. Japan allocates approximately thirteen per cent of its total government expenditure to education. China spends around fifteen per cent. South Korea dedicates nearly sixteen per cent. Even among developing economies, India's education spending as a percentage of GDP ranks among the lowest. At three per cent of GDP in Budget 2026, India falls far short of the six per cent target recommended by the National Education Policy and multiple expert committees over decades .The consequences of this underinvestment are visible across every level of education. Government schools struggle with inadequate infrastructure, teacher shortages, and poor learning outcomes, forcing middle-class parents to spend heavily on private education. The average middle-class family in urban India now spends between twenty and thirty percent of household income on children's education, including school fees, tuition classes, coaching for competitive exams, and educational materials. Higher education costs have skyrocketed, with IIT fees increasing nearly four hundred per cent over the past decade, while seats have grown marginally. Medical education remains prohibitively expensive, with private medical colleges charging fifty lakh rupees or more for an MBBS degree. Engineering, management, and other professional courses extract similar amounts from families desperate to secure their children's futures. Healthcare presents an equally dismal picture. Budget 2026 allocates ninety-eight thousand crore rupees to health and family welfare, approximately two point eight per cent of total expenditure and barely one point two per cent of GDP. The World Health Organisation recommends at least five per cent of GDP for healthcare spending. The United States spends seventeen percent, though its privatised system is inefficient. The United Kingdom spends ten percent on its National Health Service. Even China allocates approximately five point five percent of GDP to healthcare. India's chronic underinvestment means government healthcare infrastructure remains grossly inadequate, forcing families to rely on expensive private healthcare for any serious medical needs.The Ayushman Bharat scheme, the government's flagship health insurance program, covers only hospitalization costs up to five lakh rupees and is available only to the poorest forty percent of families. The middle class is explicitly excluded, deemed too wealthy to need assistance yet not wealthy enough to afford health insurance premiums that have increased by an average of twenty-two percent annually over the past five years. A middle-class family of four now pays between twenty-five thousand and forty thousand rupees annually for basic health insurance, with actual coverage limited by numerous exclusions, co-payment requirements, and claim rejection practices. Any serious illness cancer, cardiac disease, organ failure can financially devastate a middle-class family even with insurance, as out-of-pocket expenses for quality treatment easily exceed twenty to thirty lakh rupees.
Housing represents another area where Budget 2026 fails the middle class. The budget extends the Pradhan Mantri Awas Yojana for the poor with enhanced allocations, a laudable objective. However, there is no corresponding relief for middle-class home buyers. The interest rate on home loans hovers around eight point five to nine percent, up from six point five percent two years ago, dramatically increasing EMI burdens. The tax deduction on home loan interest remains capped at two lakh rupees for self-occupied property, unchanged since 2014 despite property prices nearly doubling in most cities. First-time home buyers receive no special incentives. Stamp duty and registration charges, which vary by state but typically add eight to ten percent to property costs, receive no attention in the budget.The contrast with previous budgets is instructive. Budget 2019-20 provided additional tax deduction of one point five lakh rupees on home loan interest for affordable housing, benefiting first-time buyers. Budget 2013-14 under the UPA government had extended these benefits and proposed interest subvention schemes. Budget 2026 offers nothing, even as middle-class home ownership dreams recede further due to inflated property prices, high interest rates, and stagnant real incomes. The builder and real estate lobby receives indirect benefits through infrastructure spending and relaxed regulations, while actual home buyers struggle.The cumulative effect of these policy choices is a middle class under severe financial stress. Household savings as a percentage of GDP have declined to fourteen point three percent in 2025-26 from twenty-three point six percent in 2011-12, the lowest level in nearly five decades. This is not because middle-class families have become more prosperous and are consuming more. Rather, it reflects that after paying taxes, covering inflated costs for education and healthcare, managing housing expenses, and meeting daily consumption needs amid persistent inflation, there is simply nothing left to save. Household debt levels have surged, with personal loans, credit card debt, and education loans reaching unsustainable levels for many families. The Reserve Bank of India's Financial Stability Report has flagged rising household debt as a potential systemic risk.Meanwhile, corporate India has thrived. The effective corporate tax rate was reduced from thirty percent to twenty-two percent in 2019, and to fifteen percent for new manufacturing companies. This was justified as necessary to attract investment and create jobs. Seven years later, corporate profits as a percentage of GDP are at historic highs, the stock market has reached unprecedented levels enriching wealthy investors, but the promised job creation has not materialized. Unemployment rates, particularly for educated youth, remain elevated. The jobs that have been created are increasingly in the informal sector or gig economy, offering no security, no benefits, and no path to middle-class stability. The effective tax rate paid by India's largest corporations, after accounting for deductions and exemptions, is estimated at around twelve to fifteen percent, far below what salaried middle-class professionals pay.The wealth concentration this has produced is staggering. India now has over two hundred billionaires, the third-highest number globally, with their combined wealth exceeding nine hundred billion dollars. The top one percent of Indians control over forty percent of total wealth, while the bottom fifty percent own just three percent. The middle forty-nine percent India's actual middle class holds about fifty-seven percent of wealth but generates over sixty-five percent of tax revenue. This is the definition of an extractive economic system where those in the middle are squeezed to fund benefits for those at both ends of the distribution.Budget 2026's agricultural allocation stands at one point five two lakh crore rupees, about four point four percent of total expenditure. This includes spending on rural development, irrigation, farm subsidies, and credit support. While politicians frequently invoke the farmer and agriculture in budget speeches, actual investment in agricultural research, extension services, climate-resilient farming techniques, and rural infrastructure remains inadequate. The promise to double farmer incomes by 2022 was never achieved, and Budget 2026 offers no credible pathway to accomplish this delayed goal. Farmer protests over Minimum Support Price guarantees, input cost inflation, and debt burdens continue, yet the budget's response is to maintain status quo with marginal increases.
The rural-urban divide in budget allocations reflects political calculations rather than development needs. Rural constituencies receive greater per capita spending on welfare schemes because they represent larger vote banks and because visible subsidies and handouts are more politically valuable than long-term investments in education, healthcare, and employment generation. Urban middle-class constituencies receive comparatively less because they are taken for granted by the ruling party or considered opposition strongholds where spending would not yield political returns. This political economy of budgeting means the middle class is systematically disadvantaged regardless of which party is in power.
Comparing India's fiscal priorities with other major economies illuminates how far we have strayed from development-oriented budgeting. Japan's national budget for 2026 allocates twenty-three percent to social security including pensions and healthcare, thirteen percent to education and science, eight percent to public works infrastructure, and just five percent to defense despite regional security concerns. The effective tax rate on middle-income Japanese families is comparable to India when consumption taxes are included, but they receive vastly superior public services in return. Quality public education through high school is nearly universal, healthcare is affordable through national insurance, public transportation is world-class, and social safety nets are robust.
China's budget structure prioritizes education at fifteen percent, healthcare at six percent, social security and employment at twelve percent, with significant spending on environmental protection and technological innovation. Chinese middle-class families benefit from improving public services even as they face their own challenges with housing costs and economic slowdown. The Chinese government's fiscal approach, whatever its political shortcomings, demonstrates that rapid infrastructure development and social sector investment are not mutually exclusive they require political will and equitable revenue mobilization.South Korea allocates sixteen percent of government spending to education, producing one of the world's most educated populations. Healthcare spending at seven percent of the budget, combined with mandatory universal health insurance, ensures medical costs do not bankrupt families. Social welfare spending is substantial and growing as the society ages. The Korean middle class faces challenges including extreme education competition and high housing costs in Seoul, but public investment in human capital development has been central to the country's transformation from poverty to prosperity within two generations.Germany's federal budget dedicates nearly thirty-five percent to social security and welfare, reflecting its strong social market economy model. Healthcare, education, family support, unemployment insurance, and pension systems are well-funded, ensuring middle-class families have security even during economic difficulties. The effective tax rate is higher than India's, but citizens receive value through quality public services and social protection that make the social contract legitimate. The United Kingdom, despite recent economic struggles and austerity politics, still spends substantially more on the National Health Service, education, and social protection than India does as a percentage of GDP. The British middle class complains loudly about public service quality, yet their baseline expectations free healthcare, affordable higher education until recent tuition increases, and functioning public infrastructure remain far above what India provides its middle class.
Even among comparable developing economies, India's budgetary neglect of the middle class is notable. Brazil spends over six per cent ofits GDP on education and has universal healthcare through SUS, despite inefficiencies. South Africa allocates substantial resources to education and healthcare, though inequality remains severe. Indonesia has made significant progress in expanding social services to its growing middle class. India, despite being among the fastest-growing major economies, continues to treat public investment in health and education as dispensable rather than foundational.
The philosophical question embedded in India's budgeting approach is whether we are building a modern developmental state or maintaining a neo-feudal system where the the ruler's needs and the needs of the ruling elite take precedence over the welfare of ordinary citizens. Budget 2026 suggests the latter. Infrastructure spending, while necessary, is designed and executed to benefit large contractors and corporations with political connections. Defense procurement is often plagued by inefficiency and allegations of favoritism. Welfare schemes are structured to maintain political patronage rather than genuinely empower recipients. Tax policy extracts maximum revenue from captive taxpayers while providing maximum benefits to mobile capital and wealthy individuals who can exploit loopholes.The salaried middle class cannot evade taxes through shell companies, cannot shift income to tax havens, cannot disguise consumption expenditure as business expenses, and cannot access the creative accounting available to wealthy individuals and corporations. They pay what they owe through TDS and advance tax, and then they pay again through GST on every purchase. They fund the government, yet when budget allocation time arrives, they are invisible. The welfare goes to the poor to secure votes. The concessions go to the rich to secure funding and economic support. The middle class gets lectures about patriotism and sacrifice, along with assurances that infrastructure development will eventually create prosperity that trickles down to them. After twelve years of this approach, the trickle-down has proven to be a mirage.Finance Minister Sitharaman's momentary forgetfulness about the middle class during her press conference was revealing precisely because it was unscripted and genuine. In that moment, the mask slipped, and the actual priorities of budgeting were visible. The poor must be managed through subsidies. The rich must be accommodated through policy. The middle class can be safely ignored because they have nowhere else to go. They will continue to pay their taxes, continue to work their jobs, continue to send their children to expensive private schools and coaching classes, continue to bankrupt themselves for medical emergencies, continue to take loans for housing, and continue to vote based identity and nationalism rather than economic interest.This is the system that has been constructed, budget by budget, year after year. Budget 2026 is not an aberration but a continuation of a pattern where India's fiscal policy serves the interests of political power and economic elite while extracting maximum resources from the middle class in exchange for minimum services. The budget's silence on middle-class concerns is not an oversight it is a statement of priorities. In the India being shaped by these budgets, you can be poor enough to receive handouts or wealthy enough to receive concessions, but if you are middle class, you are simply a revenue source to be tapped, not a constituency to be served.The tragedy is that a thriving middle class is essential for sustainable economic growth, political stability, and social progress. Every country that has successfully developed from post-war Japan and South Korea to modern Singapore and Taiwan did so by investing heavily in education and healthcare to expand and strengthen its middle class. India is attempting the opposite: extracting resources from the middle class while starving the very investments that would expand their ranks and secure their prosperity. This is economically counterproductive and socially corrosive.The middle class should not be seen as asking for charity when they demand tax relief, better public services, and greater investment in education and healthcare. They are demanding a fair return on the taxes they pay and a recognition that they are citizens deserving of consideration in fiscal policy, not merely subjects to be taxed. They are asking for a budget that serves all of India, not just the politically expedient poor and the economically powerful rich. They are asking to be remembered as existing, as mattering, as deserving a place in the nation's fiscal priorities. Budget 2026 has answered those demands with silence, forgetfulness, and continued extraction. Whether this is sustainable politically or economically remains to be seen, but the warning signs are clear. A middle class that feels abandoned by the state, squeezed economically, and taken for granted politically will eventually find ways to express its discontent. The question is whether India's political leadership will recognise and address middle-class concerns before frustration turns into something more destabilising. Based on Budget 2026 and Finance Minister Sitharaman's telling moment of forgetfulness, the answer appears to be no. The system continues as designed: the raja's needs first, the vote bank's needs second, and the middle class nowhere in consideration at all.
Sources and References for Budget 2026
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