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India Considering Lowering Personal Tax Rates to Boost Consumption

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News on Governance 2 1 ArdorComm Media Group India Considering Lowering Personal Tax Rates to Boost Consumption

The Indian government is contemplating lowering personal tax rates for certain categories of individuals in the upcoming Budget 2024, potentially boosting consumption in Asia’s third-largest economy. This plan might be announced in July when Prime Minister Narendra Modi’s government presents its first federal budget after the Bharatiya Janata Party (BJP) failed to secure a majority on its own. A post-poll survey revealed voter concerns about inflation, unemployment, and declining incomes. Despite the Indian economy growing at an impressive 8.2% in 2023-24, consumption only grew at half that rate. Prime Minister Modi, while claiming to form the National Democratic Alliance government, emphasized focusing on raising middle-class savings and improving their quality of life. A reduction in personal tax could enhance consumption and increase middle-class savings, according to sources, who spoke anonymously due to the confidentiality of budget discussions. The finance ministry did not immediately respond to requests for comment. The tax relief may target individuals earning over Rs 15 lakh annually, with specifics yet to be determined. The changes might affect a tax scheme introduced in 2020, where income up to Rs 15 lakh is taxed at 5%-20%, and earnings over Rs 15 lakh are taxed at 30%. The government may also consider lowering rates for annual incomes of Rs 10 lakh and discussing a new threshold for the highest tax rate of 30%. Any loss of tax revenue from these cuts could be partially offset by increased consumption among higher income earners. The federal government aims for a fiscal deficit of 5.1% of GDP by March 2025. Strong tax collections and a substantial dividend from the central bank will provide the government flexibility in planning the new budget.

Weakened Modi Government Faces Challenges in Fiscal Consolidation

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2a9b511e e210 4c5d b132 fd3e400ce016 ArdorComm Media Group Weakened Modi Government Faces Challenges in Fiscal Consolidation

Can a weakened Narendra Modi government continue its work of narrowing the fiscal gap, which it has been able to do in recent years? Economists say it is doable, but perhaps not at the pace the government would have preferred. Following exit polls, analysts were optimistic about the Indian economy’s fiscal deficit coming down to its target of 4.5 percent by FY26. This optimism was based on the prediction of a landslide victory for the BJP-led NDA. However, the actual election results were different: the NDA has enough numbers to form a government at the Centre, but the BJP on its own falls short of the majority of 272 seats needed in the 543-seat Lok Sabha. The narrower margin of victory for Indian Prime Minister Narendra Modi’s alliance in elections will forestall reforms that could have potentially facilitated aggressive fiscal consolidation, an analyst at Moody’s Ratings told Reuters in an interview. “If the BJP, like it did in 2014 and 2019, had won over 273 seats on its own, it could have pushed on with curbing the gap at a much more aggressive speed,” said Christian de Guzman, senior vice president of the sovereign risk group at Moody’s. “It looks like the prospects for even more aggressive consolidation are not as bright as they were before the election results. However, I still think that the prospects for consolidation will remain intact, and they will retain a level of fiscal discipline.” India’s Fiscal Deficit Plans India aims to narrow its fiscal deficit to 4.5 percent of GDP by the end of FY26, down from the 5.1 percent projected for the current year ending in March 2025. Some reports indicate that India is now likely to bring down its FY25 fiscal deficit target to 4.9 percent. The smaller mandate for Modi raises the risk of more populist spending to consolidate political support, Guzman said. Although the BJP’s manifesto and the Interim Budget announced by Finance Minister Nirmala Sitharaman did not hint at much populist spending, the full budget due in July will be more telling. This budget will account for the government’s plans, including the Reserve Bank of India’s record Rs 2.11 lakh crore surplus transfer. The government could use this surplus to further consolidate the fiscal position or to garner political support, Guzman added. “A shaky political outcome perhaps suggests higher odds for the latter.” Challenges to Ambitious Reforms Fitch Ratings noted that the weakened majority for Modi’s alliance could pose challenges for the more ambitious elements of the government’s reform agenda. Guzman acknowledged India’s high growth and robust economic prospects over the medium-term are already factored into their ratings, as is the progress made on macroeconomic and financial stability. However, to upgrade India’s sovereign outlook or rating, Moody’s would need to see a “much more material improvement on the fiscal side,” Guzman explained. This includes a significant reduction in government debt and an improvement in debt affordability, such as a reduction in the proportion of revenue accounted for by interest payments or debt servicing.

Finance Minister Unveils Ambitious Economic Reforms in Interim Budget for 2024-25

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Article on Government ArdorComm Media Group Finance Minister Unveils Ambitious Economic Reforms in Interim Budget for 2024-25

Finance Minister Nirmala Sitharaman outlined a comprehensive set of economic reforms aimed at driving growth in India, presenting the interim budget for 2024-25. This budget is deemed as an economic manifesto for the Bharatiya Janata Party (BJP) and is expected to provide crucial insights into the government’s plans for fiscal consolidation, borrowings, and future taxation policies in the run-up to the 2024 Lok Sabha elections. Finance Minister Nirmala Sitharaman announced a series of major initiatives aimed at driving economic growth and addressing societal challenges. Here are the key initiatives highlighted in the budget: Capital Spending Boost: The capital spending for the fiscal year 2024-25 sees a substantial 11% increase, reaching ₹11.11 lakh crore, equivalent to 3.4% of the GDP. This boost is expected to have a multiplier effect on economic growth and employment. Aviation Sector: Indian air carriers have placed orders for 1,000 new aircraft, signaling a significant move to strengthen the aviation industry. Deep Tech for Defense: A new scheme is set to be launched to strengthen deep tech capabilities in the defense sector, showcasing the government’s commitment to technological advancements in national security. Agricultural Investments: The government plans to promote both public and private investments in post-harvesting agriculture activities. Additionally, the application of nano Di-Ammonium Phosphate (DAP) on various crops will be expanded across different agri-climatic zones. Railway Infrastructure: Three major railway corridors, including one dedicated to cement transportation, will be constructed. Additionally, 40,000 normal railway bogies will undergo conversion to meet the Vande Bharat standard. GDP Redefined: Minister Sitharaman introduced a new definition for GDP, focusing on governance, development, and performance as the key components. Skill India Mission: Over 1.4 crore youth were trained and upskilled under the Skill India Mission, highlighting the government’s commitment to enhancing employability through skill development programs. Macroeconomic Stability: Sitharaman emphasized macroeconomic stability, assuring that the country’s economy is on a positive trajectory. Inclusive Focus: The budget reiterated the government’s commitment to addressing systemic inequalities, with a specific emphasis on outcomes for the poor, women, youth, and farmers. Sitharaman emphasized a focus on outcomes rather than outlays. Foreign Investment Encouragement: Measures were proposed to encourage sustained foreign investment, including negotiating bilateral investment treaties. Rs. 75,000 crores will be provided as interest-free loans to support milestone-linked reforms by state governments. Societal Changes: A high-powered committee will be formed to comprehensively address challenges arising from population growth and demographic changes, providing recommendations for comprehensive solutions. Tax Proposals: In a move aimed at the upcoming elections, Sitharaman proposed the withdrawal of all pending tax demands up to ₹25,000 until 2009-10 and ₹10,000 until 2014-15, benefiting 10 million taxpayers. The income tax rates remained unchanged, reflecting confidence in the overall economic scenario. Fiscal Deficit: The budget showcased a better-than-expected fiscal deficit of 5.8%, with a target of 5.1% in 2024-25, a development welcomed by experts. Transformative Initiatives: The budget outlined transformative initiatives spanning various sectors, including rooftop solarisation, electric vehicle charging, post-harvest activities, housing for the middle class, expansion of medical colleges, vaccination for girls, comprehensive maternal and child healthcare program, and extension of Ayushman Bharat coverage. The comprehensive set of initiatives unveiled in the interim budget reflects the government’s commitment to steering the economy towards a robust and resilient future.