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Informist, Tuesday, Feb. 4, 2025

 

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--Fin secy: Fiscal, monetary policy need to work in tandem for econ growth 
--CONTEXT: Finance secy Pandey speaking at ASSOCHAM's post-Budget event 
--Fin secy: Need to have good grip on inflation for sustainable growth 
--Fin secy: US exiting Pillar 2 tax framework brought a lot of uncertainty 
--Fin secy: Depreciating currency poses risk of imported inflation
--Fin secy: MPC needs to factor in domestic, foreign factors for rate review
 

NEW DELHI - The fiscal and monetary policies need to work in tandem to propel economic growth, Finance Secretary Tuhin Kanta Pandey said Tuesday, adding that the Budget for 2025-26 (Apr-Mar) did its part by giving a "non-inflationary" push to the economy to make room for a more accommodative monetary policy.

 

His words come just a day before the Reserve Bank of India's Monetary Policy Committee meets for the first time in 2025. The rate-setting panel will announce their policy decision on Friday. 

 

A key takeaway from Finance Minister Nirmala Sitharaman's eighth Budget was the hike in the tax rebate limit to INR 1.2 million, effectively meaning that individuals with income of up to INR 1.2 million per year will be entirely exempted from paying income tax. This move was aimed at increasing disposable income in the hands of taxpayers to spur demand.

Pandey, while speaking at ASSOCHAM's post-Budget interaction, said the Budget has put more money into the hands of taxpayers without putting strain on the country's fiscal deficit. "We are sticking to our fiscal consolidation, we said 4.9%, (but) delivered 4.8%. That time we had said for next year 4.5%, but we are doing 4.4%. We said we will give a roadmap, and we have given the road map," he said.

The Budget has pegged the fiscal deficit for FY26 at 4.4% of GDP, and lowered the target for FY25 by 10 basis points to 4.8% of GDP. 

 
The tax bonanza has ensured there is no inflationary risk, the finance secretary reiterated. "We need to have a good grip on inflation for sustainable growth," he said.

The Monetary Policy Committee has stood pat on interest rates since April 2023 as high food prices have made it difficult for the headline inflation print to align with the target of 4%. Many experts have been attributing the slowdown in the economy – which is expected to grow at a four-year low of 6.4% in FY25 – partly to tight monetary conditions. 

While on one hand, the government's fiscal support will make room for the RBI to reduce rates, on the other hand, depreciating currency could pose a risk of imported inflation, Pandey said. In that context, the central bank's rate-setting panel will have to take into account both domestic and global conditions before taking a view of their rate decision, the finance secretary said. The Indian rupee breached the INR 87.00 level against the greenback on Monday.

While the tax benefit has been broadly welcomed, a few experts have expressed their doubts about the shrinking tax base. To this, the finance secretary said the government chose to raise the rebate limit, instead of hiking the lower tax slab so that taxpayers continue to stay in the tax net. Thw rebate will ensure taxpayers continue to file returns. 

On the external side, the finance secretary also said there is a lot of "uncertainty" over international taxation due to the exiting US Pillar II tax structure. Pillar II tax structure ensures that multinational enterprises pay a minimum tax of 15% on the local income arising in each jurisdiction where they operate.  End

 

Reported by Priyasmita Dutta and Sagar Sen

Edited by Tanima Banerjee

 

 

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