One of the two macro themes for the world of business from Indiaâs latest Budget is the Governmentâs recognition of the need to leave more money in the hands of the countryâs large middle class.
Under a new tax plan, those earning up to Rs 12 lakh wonât have to pay any income tax. Earlier, it was at an income of Rs 7 lakh that one didnât have to pay any tax. The zero-tax limit is Rs 12.75 lakh for salaried tax payers, what with the standard deduction being Rs 75,000.
âSlabs and rates are being changed across the board to benefit all taxpayers,â said Finance Minister Nirmala Sitharaman at the fag end of her 77-minute speech, delivering her eighth Budget.
The voices for relief for the middle class, which began right after the NDA performed below expectations in the 2024 polls, have become loud in recent weeks. It was even part of the Budget wishlist of BJPâs ideological parent RSS. Beyond the politics of it, the economic logic lies in the fact that this will potentially give Indiaâs middle class enhanced spending power.
Sitharaman stated that the move will boost âhousehold consumption, savings, and investment.â This is important, as India, though still the fastest-growing economy in a world thatâs battling immense uncertainty, has shown signs of slowing down. And in good measure, the reason has been attributed to slowing consumption.
An economic report by Punjab National Bank last year spoke about ânotable shifts and challenges in Private Final Consumption Expenditure.â It said, âHistorically, PFCE growth was closely aligned with GDP growth until FY 2022-23, when a notable divergence occurred. During FY 2023-24, PFCE growth slowed to 4 percent, down from 6.8 percent in the preceding year.â PFCEâs share of GDP was 55.8% in FY 2023-24, compared to 58.1% in 2021-22.
Light-Touch Framework
The second big takeaway is the Governmentâs intent to pull back from too much regulation. Sitharaman said, âWe are determined to ensure that our regulations must keep up with technological innovations and global policy developments.
A light-touch regulatory framework based on principles and trust will unleash productivity and employment.â One of the four measures to achieve this is the setting up of a high-level committee, which will review all the regulations, licences and certifications in the non-financial sector. Its recommendations will be available in a year.
Other measures include a review of financial regulations, the launch of an investment friendliness index of States, and a further act of simplification and decriminalisation of legal provisions. The closest policy prescription for the above was what yesterdayâs Economic Survey referred to as âgetting out of the way.â It had said, ââGetting out of the wayâ and allowing businesses to focus on their core mission is a significant contribution that governments around the country can make to foster innovation and enhance competitiveness.â
That means, it said, rolling back regulation significantly. The survey recognised the difficulty of acting on the âgetting out of the wayâ philosophy in hierarchical societies. But, âwe have no other choice,â it said. While recognising that trust is a two-way street, the survey noted that âwiping out the trust deficit in the country is imperative and government agencies have to set the agenda in this regard.â This is a useful path to take, given that Indian startups often have to confront a complex regulatory environment, especially in their early years.
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