Good politics can also be good economics

Contrary to the popular belief, the Budget has demonstrated that good politics can also be good economics!

- Rajiv Kumar CHAIRMAN, PAHLÉ INDIA FOUNDATION

The reduction in the personal income tax rates, including the sharp rise in exemption limits to ₹12 lakh (₹12.75 lakh for salaried employees), seems to have been driven by political considerations. Politics was also presumably important for various development projects announced for Bihar. Both sets of measures also have strong economic rationale.

Raising the exemption limit and lowering the direct tax incidence on middle-income groups were also required to shore up the lagging private final consumption demand over the past three years. It was 61.1% of the GDP in 2020-21 and declined to 60.3% in 2023-24. It was with good reason that the finance minister was at pains to elaborate that these tax changes will yield substantial gains in disposable incomes for the middle class. This can also be seen as a tangible attempt to stimulate capacity expansion by private investors. This is timely.