As Assembly polls loom in 4 states, PM faces middle class' ire over Budget

Indian Prime Minister Narendra Modi, smarting from setbacks in the April-June general election, is now being berated for last week's budget by the country's swing voters, the middle class, putting his party on the defensive ahead of polls in three states and a federal territory.

The budget raised taxes on gains from retail investments in financial markets, left income tax rates untouched despite talk there would be relief and removed some real estate tax benefits, leading to outrage among the middle class, which makes up about 30 per cent of India's 1.42 billion people.

Graphics artist Namdev Katkar said he would like the opposition to replace the alliance led by Modi's Bharatiya Janata Party (BJP) in his state, Maharashtra, one of the four going to the polls. India's financial capital, Mumbai, is in Maharashtra.

"I will have to pay more taxes for my income and this is like losing our hard-earned money," said Katkar, who said he invests his savings in the stock market. "I am not yet sure whom to vote for but this time it will not be the BJP."

While any possible losses in the regional polls will not affect Modi's position as prime minister, they would add to questions about his leadership and reputation of invincibility after the BJP failed to clinch a majority in the general election to the lower house of parliament.

"If the BJP loses in the regional elections, it will impact his leadership quite adversely," said New Delhi-based political commentator Arati Jerath. "There is already a lot of restlessness within the party at the fact that in the last election ... they could not even get the majority."

Regional votes are also important because they determine a party or alliance's strength in the upper house of parliament.

The middle class - loosely defined in India as those earning between $6,000 and $36,000 a year - is generally not ideologically attached to any party but has favoured the BJP because of its largely pro-business stance.

Reuters spoke with a dozen middle-class voters in the three states after the budget and all of them said they were disappointed because their tax expenditure would either largely remain the same or rise.

"This is hurting our pockets," said Kumud Ranjan, who runs a public relations firm in the eastern state of Jharkhand. "I will think twice before voting for the BJP in the coming elections."

According to a poll by the CVoter survey agency, the budget was the most unpopular presented since Modi came to power in 2014, scoring 4 out of 10 from 2,000 respondents.

Political analysts say the middle class represents India's swing voters and along with local issues, rural distress and high unemployment, their anger could hurt the BJP's chances in the state elections. Maharashtra, Haryana, Jharkhand and the federal territory of Jammu and Kashmir are due to go to the polls starting September.

Economist Jayati Ghosh, who teaches at the University of Massachusetts Amherst, said there was "justified resentment" among most of the middle class and that could affect the political narrative.

"They have a significant voice in regular media, and especially also in social media, they can change the discourse in different ways," she said.

'I HAVE LIMITATIONS'

The opposition has been quick to press the issue.

"The middle class probably supported the prime minister before this budget," opposition leader Rahul Gandhi said in parliament. "But in this budget, you stabbed them in the back and chest. It's a sad thing but carries a hidden benefit ... the middle class is now leaving you and coming to our side."

Modi's finance minister has said she realises the pain of the middle class but cannot do much.

"I am also from the middle class ... and understand their problems," Nirmala Sitharaman told parliament after the budget. "I want to relieve the middle class but I have limitations too."

BJP spokesperson Guru Prakash Paswan said the "opposition is trying to set a narrative and they have all the right to do so".

"Our government or our party does not make any policy decisions for elections," he said. "Be it the middle class or the lower middle class, taking all sections of society forward is our basic principle. The fact that we have presented our 11th budget ... and have got another five years in power is a testament to people's faith in our politics and policies."

To be sure, many economists have praised the budget for its focus on employment generation while reducing the government's fiscal deficit target, partly thanks to a recent record dividend from the central bank.

Amitabh Tiwari, a political analyst and former investment banker, said however the middle class ire could be a millstone for the ruling party.

"The BJP has already paid the price," said Tiwari. "Its inability to reach the simple majority mark (in the general election) is largely attributed to the middle class and the rich. And it could worsen, the pace of fall could increase."