India is on its way to becoming world's 3rd largest economy, says PM Modi

Making India World's third largest economy is the goal, these were Prime Minister's words during his address to the nation on 15th August.

Laying the vision for the next 24 years, Prime Minister announced Visit Bharat by 2047, this according to the PM will be the guiding force for the government going forward.

Government policies over the past many years have been aimed at boosting India's economy.

PM took to Twitter and shared data on India's rising prosperity.

"Over the past few days I came across interesting research pieces by @TheOfficialSBI and the insightful @capitalcalculus on India's rising prosperity. I have cited these works and shared a few thoughts on @LinkedIn," PM tweeted.

GROWING INDIAN MIDDLE CLASS AND GROWING INCOMES

The rise of the new middle class is set to drive the nation towards a Middle-Income Economy status.

Researches (one from SBI Research and another by Anil Padmanabhan, a journalist) show India is making remarkable progress in achieving equitable and collective prosperity.

The research by SBI has pointed out (based on ITR returns) that the weighted mean income has made a commendable leap in the last 9 years, from Rs 4.4 lakh in AY14 to Rs 13 lakh in FY23.

Padmanabhan's study of ITR data suggests a widening tax base, across various income brackets.

Each bracket has seen a minimum threefold increase in tax filings, some even achieving a nearly fourfold surge.

Further, the research highlights the positive performance, in terms of increase in Income tax filings, across states. When comparing ITR filings between 2014 and 2023, the data paints a promising picture of increased tax participation across all states.

The increase in ITR filings has been a result of government policies.

One of the landmark taxation reforms in Indian tax history was the introduction of the Goods and Services Tax (GST) in 2017. Indian Government, in the Union Budget of 2020, introduced a new regime of personal income tax. The new regime came with revised and significantly reduced tax rates across different income tax slabs, thereby reducing the tax burden on individuals.

The new reforms were primarily aimed at simplifying the income tax structure, offering flexibility to the taxpayers, and enhancing tax compliance. The option provided to taxpayers to choose between the old and new tax regimes was a significant move, striking a balance between continuity and change. The new system also abolished 70 deductions and exemptions, aiming to make income tax filing less cumbersome and more transparent.

The government has also taken digital initiatives to bolster tax compliance and ease tax administration. The faceless tax scrutiny and appeal system is aimed at easing the tax compliance burden and ensuring transparency and efficiency in tax administration. Moreover, the government has launched a new simplified tax compliance norm 'One Nation One Taxation System'.

UTTAR PRADESH ONE OF THE TOP-PERFORMING STATES IN TERMS OF ITR FILINGS

Data Analysis of Income Tax Returns by SBI Report shows that the state of Uttar Pradesh has emerged as one of the top-performing states when it comes to ITR filings. In June 2014, Uttar Pradesh reported a modest 1.65 lakh ITR filings, but by June 2023, this figure had skyrocketed to an impressive 11.92 lakh.

The SBI report also brings forth an encouraging note, highlighting that our smaller states and that too from the Northeast, namely Manipur, Mizoram, and Nagaland, have exhibited an admirable growth of over 20% in ITR filings in the last 9 years.

This shows that not only have incomes risen but so has compliance.

Based on recent research by SBI and an analysis done on taxpayers’ data, it has emerged that the size and income of the Indian middle class have grown significantly in the last nine years.

As per the SBI research report, the weighted mean income of Rs 4.4 lakh in AY14 (basis ITR returns) has increased significantly to Rs 13 lakh in FY23.

One of the major reasons is the transition from lower income group to the upper-income group. Another reason is buoyancy in the number of tax filers who were earlier not reporting income.

RISE IN INCOME LEVELS ACROSS INCOME BRACKETS

The analysis of ITR data suggests that the tax base is expanding, especially among those declaring incomes below Rs 20 lakh.

This rise suggests either better wealth creation or improved tax compliance. Overall, more people are filing income tax returns.

The elevation in income levels is evident across all income brackets. Each income slab has seen at least a threefold increase in filers, with some even quadrupling.

GEOGRAPHICAL SPREAD OF INCOME RISE

The ITR data analysis throws some more interesting insights. Geographically, the ITR filings for the last fiscal, as on 30 June, are reasonably spread out.

A comparison of the two maps capturing the ITRs filed in 2014 and 2023 reveals that the trend is picking up across states.

The landscape of income tax return (ITR) filings in India has witnessed a significant surge across all states, with Uttar Pradesh and Bihar emerging as notable frontrunners in this remarkable transformation.

In June 2014, Uttar Pradesh reported a modest 1.65 lakh ITR filings, but by June 2023, this figure had skyrocketed to an impressive 11.92 lakh.

Similarly, Bihar, which recorded just 50,793 ITR filings in June 2014, experienced an extraordinary upswing, reaching an astonishing 4.71 lakh filings by June 2023.  

In places like the northeast, Chhattisgarh, and even Jammu Kashmir, the new ITR filings have grown by double digits.

The SBI reports state that in terms of % growth, smaller states of Manipur, Mizoram and Nagaland have registered more than 20% increase in ITR filed during the last 9 years.

It adds that Change in ITR filed during AY23 vis-a-vis AY15 shows that Maharashtra, Uttar Pradesh, Gujarat, Rajasthan and Tamil Nadu are the top 5 states. These states constitute 46% of the change in income tax returns filed during AY23 and AY15

There have been 64 lakh more ITRs filed in AY23 over AY22, with the maximum increase registered in Maharashtra followed by Uttar Pradesh, Punjab, Gujarat, and Rajasthan.

TRANSITION OF LOWER MIDDLE-INCOME CLASS TO MIDDLE AND UPPER CLASS IN PAST 10 YEARS

According to the SBI research report, 13.6% of people moved up from the lower income bracket in AY23 in comparison with AY12.

Breakdown of the population that moved to higher income groups:

8.1% increase in the population with income between Rs 5 lakh and Rs 10 lakh

3.8% increase in the population with income between Rs 10 lakh and Rs 20 lakh

1.5% increase in the population with income between Rs 20 lakh and Rs 50 lakh

0.2% increase in the population with income between Rs 50 lakh and Rs 1 crore

0.02% increase in the population with income above Rs 1 crore

GOVT POLICIES LEADING TO WIDENING TAX BRACKET

As per the SBI Research report, ITR filers are expected to increase from 70 million (7 crores) in FY23 to 482 million (48.2 crores) in FY47, increasing its share in the workforce with a taxable base from 22.4% in FY23 to 85.3% in FY47.

The report adds that by FY47, 25% of ITR filers are projected to move out of the lowest-income category.

Of this 25%:

17.5% will have an income between Rs 5 lakh and Rs 10 lakh

5% will earn between Rs 10 lakh and Rs 20 lakh

3% will earn between Rs 20 lakh and Rs 50 lakh

0.5% will earn between Rs 50 lakh and Rs 1 crore

0.075% will earn more than Rs 1 crore

Per capita income is expected to increase from Rs 2 lakh in FY23 to Rs 14.9 lakh in FY47 (in USD terms, the corresponding increase comes to ~$12,400 in FY47 from ~$2500 in FY23).

Indian Mutual Funds & DEMAT Surge

Another proxy indicator of wealth creation is the spurt in the opening of demat accounts. As the graphic above shows, in a span of four years, the number of demat accounts has more than doubled.

Similarly, the assets under management of the Indian mutual fund industry—a popular means of investing in stock markets—have surged in the last decade. It grew more than four-fold from Rs 10 lakh crore in May 2014 to a massive Rs 46.37 lakh crore on 31 July this year.