The political and economic uncertainties shaping the world today have been a key driver for several budget proposals, including the widely debated tax cut and revisions to tax slabs, chief economic adviser V. Anantha Nageswaran said on Monday.
Speaking at a post-budget interactive session organized by the Confederation of Indian Industry (CII), Nageswaran said the income tax relief announced in the budget would not only boost disposable income but also support the economy, whether directed toward consumption or savings.
“If allocated to consumption, it would strengthen aggregate demand, a key factor in providing demand visibility necessary for capital formation,” he said.
“Both would be positive for the economy if it were to be directed towards consumption; it would boost aggregate demand, which is one of the ingredients for demand visibility to be able to undertake capital formation,” he added.
Recently, finance minister Nirmala Sitharaman declared in her budget announcement that salaried individuals earning up to ₹12 lakh would be exempt from income tax.
Meanwhile, Nageswaran acknowledged the uncertainties the private sector faces in the post-covid era due to factors such as the war in Europe and years of low interest rates, but emphasized that private sector investment has been happening, even if not at the pace some might expect.
He said data for the financial year ending 2024, expected by the end of the month, will provide a detailed breakdown of capital formation.
“You will notice the private sector has indeed been investing. Maybe the pace is not as much as one would like to see, because the benchmarks that we use pertain to the first decade of the millennium when the world was a different place. We can’t have that kind of benchmark in mind for capital formation growth of the private sector,” he added.
Nageswaran said the tax cut aims to reduce demand uncertainty in the domestic economy, providing a ‘nudge’ for private sector capital formation.
“That is a very important policy direction that the tax actually suggests,” he added.
Speaking at the same interaction, Ravi Agarwal, chairman of the Central Board of Direct Taxes (CBDT), said the government’s proposal to extend the deadline for filing updated returns for any assessment year from the current limit of two years to four years was a “non-intrusive way to nudge the taxpayers towards compliance over the period of time.”
Agarwal said the government is leveraging technology to make tax processes more data driven.
“We are making use of artificial intelligence, picking up whatever cases for verification based on data analytics,” he said.
Meanwhile, Sanjay Kumar Agarwal, Chairman of the Central Board of Indirect Taxes and Customs (CBIC), said the duty reduction in the budget was an act of duty simplification to ensure the economic competitiveness of Indian industry and ease of doing business.
“We excluded the agriculture goods and textiles because these are the sensitive areas, and a lot of calibration is required as needed,” he added.
Last week, Sitharaman announced various changes in basic customs duty (BCD) for several products in the budget.
“The average customs duty rate now has come down to 10.65% from 11.65%, and we are moving towards the average tariff rate (seen) in the Asean countries,” Agarwal said. Asean stands for theAssociation of Southeast Asian Nations.
“The corrective exercise sets the optics right (as some of the items had high tariffs earlier), but we do not want to upset the competitiveness of Indian industry,” he added.
Meanwhile, Ajay Seth, secretary of the Department of Economic Affairs, said that while the budget strongly emphasizes agriculture and rural areas, given the significant population in these regions, the next priority will be expanding manufacturing.
“This is the next big piece to be done. It will be taking the story forward in this area,” he told the industry association.
Finance secretary Tuhin Kanta Pandey said the prime minister’s overall guidance for the budget was to ensure it remains pro-growth, pro-poor, pro-reform, and supportive of taxpayers, particularly the middle class.
The finance ministry’s focus has been shaped by geopolitical uncertainties, global headwinds, and ongoing geoeconomic fragmentation, with export markets facing constant uncertainty.
“At the same time, we also have our opportunities, demography and demand. Some of the factors on the demand side also need to be pushed,” he said.
“So, we worked on the demand-side measures, and we also worked on supply-side measures… Reform as a fuel, we have to have reforms everywhere,” he added.
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