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Informist, Monday, Dec. 30, 2024

 

NEW DELHI – The Confederation of Indian Industry has suggested the government reduces tax rates-—income tax, excise duty on fuel--in the Budget for 2025-26 (Apr-Mar) to help bolster consumer demand. Finance Minister Nirmala Siatharaman is likely to present the Union Budget for FY26 on Feb. 1.

 

"Domestic consumption has been critical to India's growth story, but inflationary pressures have somewhat eroded the purchasing power of consumers," CII said in a press release quoting its Director General Chandrajit Banerjee. "Government interventions could focus on enhancing disposable incomes and stimulating spending to sustain economic momentum."

 

Since the release of GDP data for Jul-Sept on Nov. 30, the government has been receiving suggestions from various industry bodies, experts, and economists to lower taxes. India's economic growth fell to a seven-quarter low of 5.4% in the September quarter due to a slump in industrial activity. During the quarter, private consumption fell to 6.0% from 7.4% in Apr-Jun, possibly due to moderation in urban demand.

 

As inflationary pressures are responsible for the eroded purchasing power of consumers, and fuel prices significantly drive inflation, CII has asked the government to cut excise duty on fuel. "The central excise duty alone accounts for approximately 21% of the retail price for petrol and 18% for diesel," CII said in the press release. "Since May 2022, these duties have not been adjusted in line with the approximately 40?crease in global crude prices."

 

CII also suggested the government cut personal income tax rates for income upto INR 2 million per annum. "This would help trigger the virtuous cycle of consumption, higher growth and higher tax revenue," the industry body said in the release. Economists had also asked the government to lower income tax rates in a pre-Budget consultation with Sitharaman on Dec. 6. 

 

Besides tax cuts, CII recommended the government introduce consumption vouchers with a designated validity, targeted at low-income groups to stimulate demand for specified goods and services. "The beneficiary criteria can be defined as Jan-Dhan account holders who are not beneficiaries of other welfare schemes," CII said.

 

The industry body also addressed in its Budget proposal the weakening trend in household savings. It asked the government to tax interest income at a lower rate and reduce the period for fixed deposits with preferential tax treatment from five years at present to three years. CII's Banerjee noted that low returns on bank deposits compared to other avenues such as equities and mutual funds, coupled with a higher tax burden on interest income, have made bank savings less attractive.

 

CII suggested that the government increase the daily minimum wage under the Mahatma Gandhi National Rural Employment Guarantee Programme to INR 375 from INR 267. This may entail an additional expenditure of INR 420 billion, according to CII. The government has made an allocation of INR 860 billion under the scheme for FY25. 

  

The industry body said the government should increase the cost under the housing scheme, which has not been revised since inception. It also suggested to raise the annual payout under Pradhan Mantri Kisan Samman Nidhi to INR 8,000 from INR 6,000. This may cost INR 200 billion extra to the exchequer, assuming the number of beneficiaries to be 100 million, CII said. This year, the government has allocated INR 600 billion to the scheme.  End

 

Reported by Krity Ambey

Edited by Deepshikha Bhardwaj

 

 

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