New Delhi: Despite the Indian economy’s world-beating 8.2 percent growth rate in 2023-24, consumption has only increased at half that pace. To address this imbalance, the Indian government is considering reducing personal tax rates for specific categories of individuals, aiming to boost consumption in Asia’s third-largest economy. This initiative is expected to be unveiled in July when Prime Minister Narendra Modi’s government presents its first federal budget following the Bharatiya Janata Party (BJP) failing to secure a majority on its own.
According to two government sources, the tax reduction plan is part of a broader strategy to stimulate domestic consumption. The slower growth in consumption, despite robust economic expansion, has raised concerns among policymakers. A post-election survey highlighted that voters are worried about inflation, unemployment, and decreasing incomes, suggesting a need for measures that can directly impact household spending power.
Prime Minister Modi has previously stated that his administration’s focus would be on increasing middle-class savings and improving their quality of life. The proposed tax cuts align with this vision, as they are likely to provide relief to middle-income earners, potentially increasing their disposable income and encouraging higher spending.
The upcoming budget announcement is highly anticipated, given the significant economic and political implications. If implemented, the tax cuts could help address some of the economic challenges facing the country, particularly in terms of boosting consumer demand and fostering a more balanced economic growth trajectory.
As the government prepares the budget, it is also mindful of the broader economic environment, including global economic conditions and domestic fiscal constraints. The proposed tax cuts will need to be carefully balanced with the need to maintain fiscal discipline and support other critical areas of the economy.
