Will UBF defeat the RBI?

"Calling yourself 'middle class' might be more about comfort than cash, says Dime founder and wealth advisor Chandralekha MR." According to her, a family with net worth below Rs 10 million is lower middle class, from Rs 10-20 million is middle class, from Rs 20-50 million is upper middle and a net worth above Rs 50 million is rich. BT. So, a lot of Indians who describe themselves as middle class are really rich. That being the case, what explains "The population covered by social protection schemes has increased from 22% in 2016 to 64.3% in in 2025, indicating substantial expansion in social security coverage in the country, data released by the statistics ministry showed." ET. Also, 813.5 million people are receiving 5 kg of free food grains every month, starting on 1 January 2024 for five years, at a cost of Rs 11.80 trillion. pib.gov.in. In September, Prime Minister Narendra Modi launched a scheme to deposit Rs 10,000 into bank accounts of 7.5 million women in Bihar at a cost of Rs 75 billion. "Starting with an initial financial support of Rs 10,000, the scheme can provide up to Rs 200,000 based on the success of the enterprise." pmindia.gov.in. There are numerous other goodies including free gas connections, free rations, free houses and so on. Cash transfers "reduce the scope for corruption and leakages and allow households to make choices suited to their needs. But cash transfers have not - with some exceptions - been used by either the central or state govts to replace existing subsidies." The concept of Universal Basic Income (UBI) (wikipedia) has been converted to Universal Basic Freebies (UBF) by Indian politicians, wrote Swaminathan Aiyar. How is the government financing all this generosity? Gross direct tax collections were nearly Rs 26 trillion in 2024-25, of which corporate taxes accounted for Rs 12.40 trillion while personal income tax collected Rs 12.90 trillion. cleartax.in. Starting in July 2017, goods and services tax (GST) collections have grown from Rs 7.19 trillion in 2017-18 to Rs 18.10 trillion in 2022-23, Rs 19.80 in 2023-24 and to Rs 22.09 trillion in 2024-25. blog.tatanexarc. com. GST collections may have been helped by high retail inflation which jumped from an average of 3.3% in 2017 to 6.6% in 2020, 5.1% in 2021, 6.7% in 2022, and 5.7% in 2023. rateinflation.com. High inflation helps the government reduce its debt by increasing indirect tax collections, reducing the value of debt and increasing income tax collections as salaries rise. economicshelp.org. However, consumer price index (CPI) inflation is expected to come in at 0.48% in October from 1.54% in September, enabling the Reserve Bank (RBI) to cut interest rate further. Reuters. "Veteran investor Shankar Sharma...warned that India's growing reliance on stock market taxes to fund capital expenditure risks leaving the economy vulnerable, describing the trend as 'stockmarketification' of the fiscal framework." ET. Freebies are permanent as trying to stop them will electoral suicide. In fact, once people are used to what they are getting they are likely to demand more. What happens if the government is unable to control its fiscal deficit and debt begins to rise? What if the markets correct? The RBI has been selling dollars to prevent the rupee from falling to 89 to the dollar. Reuters. How long can it keep its finger in the dyke? Depends on elections.