The Indian economy is currently grappling with both external and internal challenges, with the most pressing being the public mood. Despite India’s impressive GDP growth post-COVID, the ordinary Indian’s pessimism is reaching new heights, as highlighted by a recent C Voter survey conducted for India Today. According to the survey, ordinary Indians have never been as disillusioned as they are now since 2014, when Narendra Modi first took office as Prime Minister.
The paradox is striking. While India has been the fastest-growing major economy globally, particularly since the COVID-19 pandemic, the public sentiment is deeply negative. This growing discontent is not solely due to external factors such as threats from the US on tariffs but is largely driven by internal factors like persistent inflation, particularly food inflation, which has crushed the budgets of lower middle-class families. This demographic makes up the bulk of the population and is struggling to cope with rising food prices despite the government’s efforts.
Behavioral economics shows that consumer sentiment directly impacts the economy. If people are pessimistic, even a growing economy cannot buoy consumption. This pessimism is evident in the fact that many Indians, particularly from the lower middle-class, are postponing discretionary spending as they battle inflation. The real problem lies in the gap between the optimistic GDP growth statistics and the harsh reality of rising living costs, especially food prices. With food constituting a significant portion of household expenses, prolonged inflation means families are finding it increasingly difficult to manage.
As Finance Minister Nirmala Sitharaman prepares to present her eighth Union Budget, the challenge ahead is monumental. While the government’s economic policies have led to impressive numbers on paper, they seem disconnected from the lived experiences of ordinary Indians. Behavioral economics teaches that people’s expectations about their future can directly affect their decisions. With less than 30% of Indians expecting an improvement in their quality of life next year, the government faces an uphill task in restoring optimism.
Given this, what can Sitharaman do in the upcoming budget? While it’s unlikely that a budget can directly alter public sentiment, it can certainly send a powerful message. One potential move would be an income tax reform aimed at relieving the financial strain on middle-class families. The survey revealed that most Indians believe an “average” family requires an annual income between Rs 3.6 lakh and Rs 12 lakh to live comfortably. Sitharaman could announce a significant income tax exemption for families earning up to Rs 10 lakh, which would not only ease the tax burden but also provide a much-needed boost to consumer confidence. This kind of signal could help reverse the pessimism and set the stage for renewed economic optimism.
Read More: Union Budget 2025-26: Public Outrage Against Taxation
