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Informist, Friday, Dec. 6, 2024

 

By Krity Ambey, Shubham Rana, Priyasmita Dutta

 

NEW DELHI – The suggestion to cut personal income tax rates was a common thread running through almost every economist's pitch to the government at a pre-Budget consultation with the finance minister. On the other hand, the experts gave divided views on fiscal consolidation--some vouched for continuation of the current pace of consolidation, while others asked the government to relax the pace.

 

In the run-up to the Budget for 2025-26 (Apr-Mar) likely to be presented on Feb. 1, Finance Minister Nirmala Sitharaman started the customary pre-Budget consultations on Friday with a meeting with 12 economists. Finance Secretary Tuhin Kanta Pandey, Economic Affairs Secretary Ajay Seth, and Chief Economic Adviser V. Anantha Nageswaran were also present at the meeting.

 

The economists told the government to consider rationalising the personal income tax rates in the FY26 Budget to improve consumption demand. The suggestion comes in the aftermath of a seven-quarter low GDP growth in Jul-Sept.

 

India's economic growth fell sharply to 5.4% in the September quarter due to a slump in the growth of industrial activity, data released last week showed. During the quarter, private consumption fell to 6.0% from 7.4% in Apr-Jun, possibly due to moderation in urban demand.

 

"There is a scope for reduction of personal income tax," Anil Sharma, a chartered accountant and eminent economist who participated in the meeting, said. "Earlier, dividend distribution tax was paid by companies, so it was part of corporate tax, but now it is paid by the individual. If the calculation is available--how much tax they (government) are getting from dividend distribution--they can analyse how much tax collection has increased and accordingly reduce personal income tax," Sharma said. From FY21, the government has been taxing dividend income in the hands of shareholders. Earlier, the government levied 15% tax on companies on dividends distributed by them.

 

The Indian economy has been grappling with slow consumption demand since FY24. Economists had suggested that the government rationalise income tax before the full Budget for the current year. Following this, in the July Budget, the government tweaked the tax slabs under the new income tax regime, and also raised the standard deduction limit to INR 75,000 from INR 50,000.

 

SPLIT SUGGESTION

The economists gave divergent views on the pace of fiscal consolidation. "Some people asked for clarity on how the government would go about targetting debt-to-GDP from FY27 onwards," another economist, who attended the meeting, told Informist on the conditions of anonymity. "Even a moderate pace of fiscal consolidation can help lower debt-to-GDP."

 

After meeting the fiscal consolidation target of 4.5% of GDP by FY26, the government aims to focus on reducing the debt-to-GDP ratio. The government outdid its fiscal deficit target in FY24 by lowering it to 5.6% of GDP from the initial target of 5.9% of GDP. Then in the Interim Budget for FY25, the government pegged the deficit at 5.1% of GDP but bettered it further in the full Budget with an estimate of 4.9% of GDP.

 

The economists told the government to continue with its thrust on capital expenditure, but also consider lowering the capital expenditure loan to the states. The government has set a capital expenditure target of INR 11.11 trillion for the current year, that includes INR 1.5 trillion of interest-free loans to states for capital spending.

 

Other subjects of discussion at the meeting included unemployment, skilling, food inflation, and climate change. The economists asked the government to frame a uniform manufacturing policy, Ashwini Mahajan, national co-convenor at Swadeshi Jangran Manch, said. "We also suggested them to focus on improving infrastructure for food storage to prevent volatility in food inflation," Mahajan added.

 

The finance ministry will hold more such pre-Budget consultations in the coming days with experts and industry bodies from different fields. The next meeting is with farm associations on Saturday.  End

 

Edited by Ashish Shirke

 

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