Subscribe to enjoy similar stories. The budget this year came in the background of an economic slowdown led by weak urban consumption and lower government capex. Hence, finance minister (FM) Nirmala Sitharaman was expected to stimulate growth while continuing on the path of fiscal consolidation.
The budget has delivered on this by incentivizing urban consumption through tax cuts while continuing on the path of fiscal consolidation. More importantly, by shifting the anchor of fiscal consolidation from fiscal deficit to debt to GDP, the FM has created room for stimulating capital spending from next year. Hence, the budget has addressed both near-term and medium-term growth concerns while continuing on the path of reducing debt to GDP over the long-term.
The biggest announcement in the budget was for 8 crore income tax filers who on an aggregate basis will save ₹1 trillion in the budget (0.3% of GDP). Assuming a marginal propensity to consume of 0.77, it implies a 0.2% increase in growth in FY26 from FY25. In addition, it should lead to increase in capacity utilization and thus drive investments in the long-term.
Given the reduction in income tax, next year’s personal income tax collections are estimated to increase by 14.4%, slower than 20.3% in FY25. Given the pick-up in demand, corporate earnings and tax collections should also see an uplift from an increase of 7.6% in FY25 to 10.4% in FY26. Hence, overall direct tax collections are estimated to increase by 12.7% in FY26 from 14.4% in FY25, which seems achievable on a low base for corporate taxes even as income tax collections may be slightly lower.
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