 "Union budget")
With the full Budget for FY25 slated to be unveiled next month, anticipation is mounting regarding significant announcements aimed at providing relief to the salaried class. An Indian Express report suggests that the government is considering alterations to the existing income tax framework, particularly targeting lower income brackets to bolster consumption.
Citing two government officials, the report indicated that the upcoming Budget announcement in late July might emphasise tax reductions for low-income earners rather than increasing welfare expenditures.
These proposed tax reductions will aim to increase disposable income, thereby boosting economic activity and consumption. The report also underscored concerns about the steep escalation in marginal income tax rates under the new tax regime.
Possible relief in high tax slabs
Officials quoted by the national-daily mentioned that tax reductions could be more effective in driving consumption compared to expanding welfare spending.
One official highlighted that adjusting tax slabs would result in higher disposable income, which in turn means “greater consumption, greater economic activities, and increased GST collection.”
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Currently, the tax rate starts at 5 per cent for incomes beginning at Rs 3 lakh and rises sharply to 30 per cent for incomes at Rs 15 lakh and above. This six fold increase in the tax rate, despite only a fivefold increase in income, is considered excessive and requires rationalisation, the report claimed.
Implementing these tax reductions is anticipated to boost consumption, which is essential for reviving demand and jump-starting the investment cycle, particularly in consumer-driven sectors. This initiative could also enhance GST collections, The Indian Express report said.
Preparation for 2024 Budget
As the budget for the fiscal year 2024-25 approaches, likely to be presented in Parliament in late July, Finance Minister Nirmala Sitharaman is set to begin pre-budget consultations with industry groups around June 20, following a meeting with Revenue Secretary Sanjay Malhotra on June 18.
This budget will set forth the economic agenda of the Modi 3.0 government, which is aiming to stimulate growth without causing any further spike in inflation, while securing resources for coalition commitments.
In recent years, the government has concentrated on fiscal consolidation, aiming to decrease the fiscal deficit to 5.1 per cent of GDP by 2024-25 and further lower it to below 4.5 per cent by 2025-26.
According to the BJP’s political campaign, the broader objective of this Budget is likely to position India as a $5-trillion economy and evolve into a ‘Developed India’ by 2047.
In its recent Monetary Policy announcement, the Reserve Bank of India (RBI) forecasted a 7.2 per cent growth for the Indian economy for FY25, fuelled by improving rural demand and easing inflation.
Economists have noted that key priorities for Prime Minister Narendra Modi’s third term will include tackling agricultural challenges, job creation, sustaining capital expenditure, and enhancing revenue growth to maintain fiscal consolidation.
Meanwhile, the economic policies of the past decade have received positive feedback, with rating agency S&P upgrading India’s sovereign rating outlook to positive, and a potential further upgrade in the next 1-2 years if fiscal deficit targets are met.
In its recent global economic report, the World Bank predicted that India is set to remain the fastest-growing major economy globally, though its growth rate is expected to slow. The June ‘Global Economic Prospects’ report retained the GDP India’s growth forecast at 6.6 per cent for FY25.
