Indians hoping for personal tax rebates in the FY24 budget may be disappointed, with the Union government, confident of robust growth in consumption and private investments, likely to avoid any steps that could hinder the central bank’s battle against inflation.
The finance ministry draws its optimism about economic growth and private investment revival from the healthy credit offtake and positive feedback from small businesses at a time global businesses are eyeing alternatives to China, a person aware of the discussions in the government said.
“Multilateral agencies may be lowering their global growth forecast for next year, but India’s situation is not that bad. We are already spending quite well on rural welfare schemes like Pradhan Mantri Awas Yojana and National Rural Employment Guarantee Scheme (NREGS) that strongly support rural consumption. Anecdotes suggest that businesses facing growth prospects, especially small businesses, are in the mode of making investments as multinational companies are exploring alternatives to supply arrangements amid disruption in China. Large companies will also invest,” the person cited above said on the condition of anonymity. Also, fiscal policy cannot run counter to monetary policy, which is trying to tame inflation.
Besides, the political setback that the Liz Truss government in the UK faced after proposing sharp tax cuts has not been lost on policymakers here, the person said, suggesting that fiscal responsibility is a key goal for the government.
Last month, Truss resigned after 44 days in office after her government’s “high growth, low tax” economic plan that included a £45 billion of unfunded tax cuts hammered the pound sterling, raised borrowing costs for the government and attracted criticism from the International Monetary Fund.
Personal income tax rate sops are seen by industry watchers as a consumption-boosting measure, as businesses tend to make fresh investments when their capacity utilization crosses a threshold which gives them confidence about future orders.
However, the war in Europe and the coordinated monetary policy action by several central banks to fight inflation has posed uncertainties to economic growth globally and to recovery in private investments in India.
This gives rise to an expectation that consumption as a growth engine may get more policy push.
Source from: https://www.livemint.com/politics/policy/centre-may-give-tax-sops-a-pass-in-budget-11668971937866.html
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