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Synopsis: Reports suggest the Indian government might introduce tax cuts for lower-income groups in the 2024-25 budget to boost consumption. The budget, expected in late July, aims to stimulate economic activity and enhance GST collections. Key focuses include balancing growth with fiscal discipline and aiming for a USD 5-trillion economy by 2047.
As the fiscal year 2024-25 budget preparation ramps up, reports suggest that the Indian government is contemplating significant changes to the income tax structure, particularly for lower-income groups. The budget, likely to be presented in Parliament in late July, could include tax cuts aimed at increasing disposable income and boosting consumption .
Finance Minister Nirmala Sitharaman is expected to begin pre-budget discussions with industry representatives around June 20. A meeting with Revenue Secretary Sanjay Malhotra is also scheduled for June 18 .
Proposed Tax Reforms
An Indian Express report highlights that the current tax structure might be rationalized to address concerns about the steep rise in marginal income tax rates. Currently, the tax rate jumps from 5% at an income of Rs 3 lakh to 30% at Rs 15 lakh, which is seen as disproportionately high .
These reforms are expected to prioritize tax cuts over welfare spending, thereby increasing disposable income, stimulating consumption, and fostering economic activity. The anticipated boost in consumption is crucial for reviving demand, particularly in consumer-focused sectors, and could also enhance GST collections .
Economic Outlook
The upcoming budget will outline the Modi 3.0 government's economic agenda, aiming to balance growth stimulation without triggering inflation while meeting the coalition government's commitments. The government aspires to position India as a USD 5-trillion economy and transform it into a 'Developed India' by 2047 .
The Reserve Bank of India projects a 7.2% growth for the Indian economy this fiscal year, driven by improved rural demand and easing inflation. The strong economic performance is further supported by the RBI's record dividend of Rs 2.11 lakh crore for FY24 .
Key Focus Areas
Prime Minister Modi's third term will focus on addressing agricultural challenges, job creation, sustaining capital expenditure, and increasing revenue growth to maintain fiscal discipline. Despite robust tax revenues, the government faces challenges with non-tax revenue, particularly due to limited progress in strategic disinvestment .
Rating agency S&P has upgraded India's sovereign rating outlook to positive, reflecting approval of economic policies over the past decade. There is potential for further upgrades if the government meets its fiscal deficit targets in the coming years .
