Claim: Online portal ‘The Wire’ published an article by Shri Dhananjay, a senior economist at Systematix Group. It argues that average income growth of the Indian middle class can be inferred from the average gross total income of income tax return filers. Since this average income grew at a CAGR of only 6.3 percent between 2013–14 and 2023–24, and inflation during this period was similar, it implies that real income has barely grown. Therefore, middle-class income has stagnated over the last decade.
Our examination found the claim to be MISLEADING.
How we examined the claim:
1. We examined the comparison between 2013-14 and 2022-23 for income tax returnee average income for validity
We found the comparison methodology statistically invalid.
- In 2013–14, there were 3.6 crore tax returns with total gross income of ₹24.3 lakh crore
- In 2022–23, there were 7.2 crore returns with total gross income of ₹89.5 lakh crore
The number of filers nearly doubled. Most new filers entered at lower income levels as criteria for filing returns widened and compliance grew. When you combine these with older, higher-income filers, the resulting average is diluted. It may appear that average income is not rising much, but that is simply due to the changing composition of the population. Think of it like a school where high-performing students have been scoring well for years, and then many new students join who are still learning.
If you calculate the average score, it might look like the class is doing worse, even if the original students are performing just as well or better. Such a comparison would be inconclusive, hence invalid.
2. We examined if it is meaningful to calculate a compound annual growth rate in this case
The CAGR calculation is:
- Average income 2013-14: ₹6.74 lakh per return
- Average income 2022-23: ₹12.34 lakh per return
- CAGR over 9 years: 6.24%
Using CAGR to measure income growth is only valid if you are tracking the same group over time. However, if the population has changed significantly, the CAGR is analytically meaningless, revealing either a lack of statistical literacy or a deliberate attempt to support a pre-existing narrative.
3. What is the correct way to assess middle-class income growth?
To understand income trends meaningfully, one must either follow the same individuals over time or analyse stable subgroups such as salaried urban professionals or sector-specific cohorts. This requires either longitudinal data or strong proxy categories.
Without this approach, the analysis will likely yield distorted or even completely incorrect conclusions. Averages are especially unreliable when the underlying population changes dramatically.
4. What does official Per Capita Net National Income growth for the period indicate?
As a comparison. the Per Capital Net National Income stood at Rs. 86,647 in 2014-15. Is it projected to reach Rs. 2,05,579 in 2024-25. This has more than doubled, and represents CAGR growth of 9.02% per annum. The average inflation for the period stood at around 5.4%. these numbers indicate a reliable estimate of real income growth in India. (Source: MOSPI, GOI)
Conclusion:
Using flawed approaches to make sweeping conclusions about the Indian middle class is not just careless, it undermines serious economic discussion and confuses the public’s understanding of income and tax data.
The claim that India’s middle-class incomes have stagnated is based on a misreading of average income data. The slower growth in average income per return is largely due to the doubling of the filer base, which now includes many lower-tax slab individuals.
This is not a story of stagnation. It is a story of formalization. As more people start filing taxes, the average naturally adjusts downward, but this reflects progress, not decline. The structure of the economy is maturing. Tax compliance is improving.
Therefore, the claim is misleading.
