India has slashed income tax but needs to snip its red tape

Easing the compliance burden of businesses is far more important

- ANDY MUKHERJEE

The Indian middle class, and even some of its top 10% earners, are now fully exempt from income tax. Small businesses don't expect such largesse; they just want to know when they will be free of stifling red tape. Depending on whom you ask, India's government is either being bold in raising the effective threshold for paying tax by 1.7 times. Or it's a tacit admission that consumption taxes are so high that even people making five times the average adult wage are struggling to fork out income taxes. As I wrote in January, the economy is in dire need of a readjustment, and getting people to spend is the only way.

The $12 billion fiscal stimulus, estimated at about 0.5% of private consumption, may not fully reverse the slowdown in urban spending: 37% of respondents said in a recent survey that they expect quality of life to deteriorate over the next 12 months, a level of despondence not seen since Narendra Modi became PM in 2014.

Still, the rebate won't hurt. Even if the recipients save a part of their bonanza, the tax relief should boost consumer sentiment, at least for now. With a little luck, the afterglow will last until it's safe for the Reserve Bank of India to cut interest rates and revive the economy from its slowest pace of expansion in four years.