Expectations from the budget: Income tax cuts and emphasis on investment necessary to increase the economic growth

New Delhi|To boost the pace of the Indian economy amid global uncertainties, there is a need to focus on domestic factors like reducing personal income tax and allocating more capital for investment. Urban consumption is lagging, so the personal income tax structure should be rationalised in terms of both rates and cuts, so that extra money to spend can come into the hands of lower and middle income groups, said DK Srivastava, a member of the advisory council of the 16th Finance Commission

Srivastava said, at present the global economic conditions are not suitable for the economy of the world. In such a situation, the government has to depend heavily on factors like domestic demand. The budget for FY 2025-26 should increase capital expenditure by 20 per cent compared to the revised estimates for the current financial year. Fiscal deficit is estimated to be 4.8 per cent of GDP in the current financial year and 4.4 per cent in the next financial year.

According to Srivastava, it is expected that the government will choose methods like investment and to some extent consumption for fiscal stimulus measures. Investment is the main driver of domestic demand, which so far it has been successful. This is the reason why our economic growth rate has been strong in the last three years. GDP is projected to grow at 6.4 per cent in the current financial year. The Economic Survey presented in July last year had estimated a growth rate of 6.5-7 per cent for the current financial year.

The slowdown seen in the country’s economic growth rate during the current financial year is mainly due to the decline in government capital expenditure. Between April – November, 2024, the government made capital expenditure of Rs 5.13 lakh crore, which is 46 per cent of the budget estimate of Rs 11.11 lakh crore. This means that in the remaining months of the current financial year, the government will have to spend 54 per cent.The pace of investment growth will have to be restored as a part of fiscal stimulus. Along with this, there will also be a need to encourage expenditure on consumption. GDP growth declined more than expected to 5.4 per cent in the third quarter of the current financial year due to reduced consumption.

Nagesh Kumar, member of the Monetary Policy Committee of RBI, believes that to boost economic growth and make it more sustainable, there is a need to focus on investment in infrastructure along with capital expenditure. Maintaining infrastructure spending and increasing it will help in further strengthening economic growth.

Kumar said, the way Finance Minister Nirmala Sitharaman had emphasized on capital and infrastructure expenditure two years ago, she will continue it this time too.

The need to bring the next version of infrastructure
DK Srivastava, a member of the advisory council of the 16th Finance Commission, said, It’s time the government brought the next version of infrastructure, launched 5-6 years ago. That means it will have to be expedited further. Some support from the monetary side is expected in the budget and in FY 2026 RBI may cut interest rates by 0.5 per cent in two rounds.

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