Modi Government introduces tax cuts to boost economic growth

In a bid to rejuvenate India's economic growth, Prime Minister Narendra Modi's government has focused on increasing domestic demand through tax cuts aimed at the country's vast middle class. The announcement comes amidst a globally uncertain economic landscape, with potential new tariff barriers threatening global trade.

India's Finance Minister, Nirmala Sitharaman, unveiled the country's annual budget, which includes a significant reduction in personal income tax rates to stimulate household consumption and investment. The move, targeting the middle class, is expected to leave more money in the pockets of consumers, particularly those earning below 1.28 million rupees ($14,800) per year, who will no longer be subject to income tax. The government has raised the threshold for tax-free income from 700,000 rupees, providing immediate relief to millions of individuals.

In addition to tax relief, the government has rolled out several initiatives aimed at boosting productivity in agriculture, manufacturing, and exports. The budget also highlights measures designed to support the youth, women, and farmers.

The tax cuts come at a cost, with the Treasury set to lose around 1 trillion rupees ($11.6 billion) in revenue annually. However, the government believes the long-term benefits of increased domestic consumption and investment will outweigh the immediate financial impact.

Despite these efforts, India’s economy is expected to experience its slowest growth in four years, driven by weak urban demand and high food inflation that has reduced disposable incomes for many. The country’s per capita income is currently around $2,700, with about one-third of the 1.4 billion population considered middle class.

Economists have expressed cautious optimism about the tax cuts, which they believe could spur consumer demand and bolster savings. According to Sakshi Gupta, an economist at HDFC Bank, the move should provide relief to the middle class, which has struggled with high inflation and stagnant income growth.

While Modi’s popularity has been dented by rising living costs, the budget is aimed at reinvigorating the economy and boosting confidence in India's growth prospects.