The Circular Economy Works Out

M Nagaraju, secretary, Department of Financial Services (DFS) speaks to Pushpita Dey about how the income-tax relief will set off a virtuous cycle. Edited excerpts

- Pushpita Dey

Will income tax relief in the Union Budget help boost deposits at a time equity is preferred more?

The finance minister has announced several tax-relief measures. One of the key changes is the increase in the tax-exemption limit to Rs 12 lakh. Additionally, for senior citizens, the [interest] exemption limit has been raised from Rs 50,000 to Rs 1 lakh.

Based on our data and certain assumptions, it is estimated that these tax-relief measures could result in an additional Rs 40,000–45,000 crore entering the banking system over the next year. This inflow of funds will enable banks to extend more credit to essential sectors, thereby supporting economic growth.

So, that’s how it works. Once you provide income-tax relief, it establishes new industries, creates infrastructure, which leads to employment, [higher] salaries. The circular economy works out.

A fund-of-funds for start-ups was announced in the Budget. How will it be financed and disbursed?

Start-ups often find it challenging to secure funding from the banking industry due to inherent risks. As a result, they typically seek funding at later stages—Series B or C. In early stages, when a start-up is built around a promising idea, equity financing is generally the most crucial requirement.