India’s middle class, often regarded as the foundation of the country’s economic growth, is grappling with a combination of pressures that analysts say is reshaping financial security for millions of households. Rising taxes, fewer salaried job opportunities and stagnating wages are creating what experts describe as a middle-class squeeze across urban India.
Rising tax pressures on salaried households
The past few years have seen an uptick in the overall taxation of the middle-income bracket gradually if not slowly. The pie chart, made available by the government, shows that the portion of personal tax in the GDP or what is usually referred to as ‘Total Income Tax as a Share of GDP‘ went up from 2.5% during the year 2018-19 to a whopping almost 3.8% in the year 2024-25. The government has given the reason for this increase as better compliance and higher formalisation of income, but on the contrary, many analysts are of the opinion that the burden of taxes, both direct and indirect, has now been shared disproportionately with the salaried class.
The Goods and Services Tax (GST) is one of the factors that have increased the tax burden on consumers and consequently the out-of-pocket costs for not only the essential but also non-essential items. The middle-income group, unlike the lower-income group that is on subsidies, and the higher-income group that has tax-planning schemes, cannot be very flexible in their operations. The financial community has dubbed this increasing tax burden as a significant source of stress.
Slowing growth in formal employment
The pressure being felt by the salaried class gets doubled considering that there is a visible slowdown in the creation of salaried jobs in the major sectors. The IT, telecom, banking, and engineering industries along with corporate services have reduced their hiring since 2023. Phasing out of the workforce due to automation, offshoring, and corporate cutting costs have all contributed to the shrinkage of opportunities for the middle-income class workers.
According to employment experts, firms are increasingly favoring gig and contract workers instead of traditional long-term staff. The experts believe that this trend indicates a structural change in India’s labor market, which can drastically change the career ambitions of educated workers. The decreasing number of job positions due to layoffs is also leading to increasing feelings of insecurity among the young professionals who are entering the labor market.
Wages not keeping pace with inflation
The situation is miserable for those employed in permanent positions in terms of wages, as wage hikes have been unable to beat inflation. Studies reveal that people in the corporate world are getting 4-6% more salary each year on average, but the inflation rate is around 6%, which is technically reducing the purchasing power of many households.
Living expenses that have been going up such as housing, healthcare, education, and transportation are forcing families to stretch their budgets even more. A recent study in the area of finance has found out that the amount paid for non-housing household loans now absorbs close to 33% of disposable income, which points to more and more dependence on personal loans and credit cards.
As a result of the decline in disposable income, families belonging to the middle class are reducing their expenses on non-essential items, postponing big purchases, and using their savings more frequently. Analysts interpret this pattern as being mirrored in the demand decline in the sectors of consumer durables, entry-level vehicles, and fast-moving consumer goods (FMCG).
Impact on broader economic activity
Economists have issued a warning that if the financial stress on the middle class lasts for an extended period, it could become a factor that impedes India’s broader economic ambitions. Not only they make up the largest part of the urban market consumer base, but also any long-lasting reduction in their consumption will reflect in GDP growth being weighed down and in several industries being slowed down.
Potential policy interventions
To help the middle-class groups, analysts have proposed solutions like adjusting the income tax brackets, performing a sector-wide project of expanding employment-linked incentives in the newly set-up industries, and supplying workers with social protection systems. Investment in upskilling and digital training programmes is another area which is considered to be vital for fostering job resilience in the rapidly changing workforce.
A decisive moment for India’s middle class
Even when India continues to demonstrate the high confidence of long-term robust economic prospects, the short-term concerns of middle-income households have been more than ever the case. Rising prices, stagnating job creation, and tax pressure have all conspired to make it a very brittle environment for millions of families.
