Will India’s Budget Boost for the Middle Class Spur Tech Spending and Digital Inclusion?

The Union Budget 2025, presented by finance minister Nirmala Sitharaman, is both bold and forward-looking – especially as India enters the new AI wave. 

To realise the vision of an AI-first economy, Sitharam bet heavily on consumption expenditure – one of the important ‘3Cs’ for the economy. 

The Budget reflects a focus on skilling and training, ensuring that India’s workforce is equipped to utilise the transformative potential of AI across industries.

Sitharaman also called India the “fastest-growing major economy”, even as GDP growth is expected to slip to 6.3-6.8% from last year’s 8.2%, as per the Economic Survey presented a day before the Budget. 

With middle-class relief at its core, the Budget aims to accelerate tech adoption and expand digital inclusion. By easing financial pressures on consumers and businesses, it sets the stage for increased digital investments, wider internet access, and a stronger push toward a tech-driven economy.

Boon for the Middle Class

The budget brings much-needed tax relief for the middle class, which has been waiting for concessions for years. One of the biggest takeaways is that income up to ₹12 lakh will now be tax-free, owing to the removal of income tax in this bracket. Moreover, an additional ₹75,000 standard deduction pushes the tax-free limit to ₹12.75 lakh.

A direct impact of this push is an increase in middle class consumer spending, which fuels economic growth through demand-driven expansion.

According to GV Joshi, an economist and former member of the Karnataka State Planning Board, the middle class’s willingness to spend more, leading to a demand for various goods in the market, signals scope for the economy’s growth. While expansion of the middle class can help reduce economic inequality, tax relief alone may not be enough to achieve this goal, Joshi added.

Many remain optimistic that this will ultimately boost technology spending among the middle class. Sid Tipnis, technology leader at Deloitte India, highlighted that tax breaks and increased disposable income could drive greater investment in digital devices, including smartphones, laptops, and other tech products. He emphasised that digital devices have become essential in everyday life, positioning them as a key spending priority for households.

“While tax cuts create a more encouraging economic atmosphere, they are not expected to cause a major increase in consumer spending. Only a tiny fraction of the population are income taxpayers, compared to significantly higher percentages in Germany, the UK, and the US,” Joshi added.

India’s per capita income is $2,700 and one-third of its 1.4 billion population is considered middle class. However, according to data presented in the Parliament, only 1.6% (22.4 million) actually paid income taxes in 2023. 

The AI Impetus 

Sitharaman announced that the government will establish five national centres of excellence (CoE) for skilling and a ₹500 crore AI CoE for education. These centres will focus on curriculum design, trainer training, and skill certification. 

Over the past decade, enrolment in IITs has doubled to 1.35 lakh. Moreover, additional infrastructure for five IITs built after 2014 will accommodate 6,500 more students. In the next five years, 10,000 fellowships will support tech research in IITs and IISCs. 

“The number of IITs being increased…[and] IITs being recognised as centres for promoting innovation is also good as they put India on the global map,” Joshi further said. The Budget also announced the launch of IIT Patna as well. 

IITs hold a significant influence. Perplexity CEO Aravind Srinivas, an IIT alumnus, is expanding Perplexity Pro access to IITians to promote adoption. “We’re launching a two-week event across all IITs. Students can unlock Perplexity Pro for their entire campus…I’ll visit the IIT with the most Perplexity users later this year,” he announced.

AI adoption in the country is on the rise.

Ahead of the Union Budget 2025, the chief economic advisor to the Indian government, V Anantha Nageswaran, discussed the impact of AI on employment and labour in the latest economic survey. President Droupadi Murmu, while addressing the joint session of Parliament ahead of the Union Budget session, emphasised the government’s commitment to making India a global leader in innovation and digital technology. 

Startups at the Heart of India’s Economy 

A ₹10,000 crore startup fund will provide early-stage capital, potentially boosting India’s unicorn ecosystem. In addition, a scheme will be launched for 5 lakh women SC/ST first-time entrepreneurs. According to the Budget, MSME investment and turnover limits have also been doubled, which will aid small businesses in semi-urban and rural areas.

“One important advantage of startups is that there can be a good degree of decentralisation of economic powers,” Joshi added. He also highlighted that while Karnataka, especially Bengaluru, continues to be India’s leading startup hub, other states are also experiencing a growing startup presence and expanding the country’s entrepreneurial ecosystem.

Bridging the Urban-Rural Divide

To overcome the urban-rural divide, in addition to the tax slabs being relaxed, the modified UDAN scheme will connect 120 new destinations. This will improve air connectivity in rural regions. Broadband access will be provided to all government secondary schools and primary healthcare centres to bridge the rural digital gap.

“It has been encouraging both the rural and the urban people to purchase more and to, say, create a very encouraging atmosphere for increasing demand. As you know, there has been sluggish demand all these years, and that is being done,” Joshi said. He added that systemic issues must change – rural infrastructure needs improvement, and educational facilities must expand for growth and inclusivity.