India’s newly unveiled budget has brought some relief to the country’s middle class with tax cuts and increased income tax exemption limits. However, experts are questioning whether these measures will be enough to boost the economy, which is set for its slowest expansion in four years.
The government has raised income tax exemption limits up to 1.2 million rupees (approximately $13,841; £11,165), making earnings entirely tax-free. This move aims to address the slump in urban consumption, according to Nomura’s India Economist Aurodeep Nandi.
Despite the relief for the middle class, a tiny fraction of Indians pay direct taxes, with only 1.6% (22.4 million people) paying income taxes in 2023. The market reacted positively to the announcements, with stocks of automobiles, consumer goods, and online grocery companies rallying.
The government has also set a goal to generate 100GW of nuclear energy by 2047, launched a Nuclear Energy Mission with a budget of 200 billion rupees ($2.3bn; £1.86bn), and increased foreign direct investment limits for the insurance sector from 74% to 100%.
To ease doing business, the government has announced a high-level committee to undertake regulatory reforms in non-financial sectors. Small and micro industries received a boost through fiscal support of 1.5 trillion rupees ($17.31bn; £13.96bn) over the next five years.
The budget also reiterated its commitment to reducing the deficit, aiming for 4.4% by 2026 from 4.8% this year. Global rating agencies closely watch these numbers, as a reduction in debt figures can lead to better investment ratings and lower borrowing costs.
Experts are awaiting the Reserve Bank of India’s (RBI) monetary policy meeting later this month, where it is likely to begin easing interest rates as both growth and inflation have begun to come down.
Source: https://www.bbc.com/news/articles/cx25k05p1y1o