Economists and industry experts have urged the government to introduce significant reforms in the upcoming Union Budget for 2025 to reduce the burden on taxpayers, promote savings, and drive economic growth. These recommendations were shared during a pre-budget consultation with Prime Minister Narendra Modi, where discussions revolved around strategies to tackle India's pressing economic challenges, such as weak consumption, rising inflation, and global economic uncertainties.
Reducing Income Tax and Promoting Savings One of the most pressing suggestions from economists was to lower income tax rates across various income brackets. This measure would reduce the financial burden on citizens, providing them with more disposable income, which they could use to save or spend on essential goods and services. The increase in disposable income could be particularly beneficial in stimulating demand in sectors such as retail, automobiles, and housing, which have been struggling with low consumption levels in recent months. By lowering taxes, the government could also boost savings rates, which are essential for economic growth, especially in sectors requiring long-term capital investment.
Economists also advocated for rationalizing customs tariffs and offering targeted benefits to vulnerable groups. Lower-income households, in particular, would stand to benefit from reduced tax rates, as this would directly improve their household budgets. This could lead to an increase in consumption, which has been stagnating in the country due to inflationary pressures.
In addition to tax reforms, experts suggested policies that focus on the inclusion of marginalized groups in the economy, ensuring that benefits reach the poorest citizens and thus improving their financial stability. They recommended expanding direct benefit transfer schemes to increase the impact of government welfare programs. This, they believe, could have a significant multiplier effect on the economy, boosting demand in areas like agriculture and manufacturing, and creating a ripple effect that would benefit other sectors as well.
Focus on Employment Generation and Data-Driven Policies During the pre-budget interaction, Prime Minister Modi emphasized the government's continued commitment to employment generation as a key priority. Economists stressed that creating more jobs, especially in non-agricultural sectors, is essential for India's long-term economic health. The government’s focus on making India a "Viksit Bharat" or developed nation by 2047 aligns with this vision, and experts called for policy interventions to make this goal a reality.
In terms of data quality, economists suggested improving the availability of reliable and timely data, which would empower policymakers to make more informed decisions. Accurate and transparent data is crucial for identifying areas of weakness in the economy and for designing interventions that can drive economic recovery and growth. Moreover, targeted interventions can help address structural problems such as the underperformance of the manufacturing sector, which has yet to reach its full potential.
Weak Consumption and Inflationary Pressures India has been grappling with weak consumption, which has failed to match the country's economic growth targets. The GDP growth rate for the July-September quarter of 2024 stood at just 5.4%, falling short of the Reserve Bank of India’s (RBI) target of 7%. Economists warned that consumption patterns must improve for the economy to maintain its growth momentum. As household budgets tighten due to inflation, many consumers are cutting back on discretionary spending, which has led to a slowdown in demand across various sectors.
Inflation continues to be a significant concern, with consumer prices rising above the RBI’s target of 4%. This persistent inflationary pressure is dampening purchasing power, especially for lower and middle-income households. To manage inflation while supporting growth, economists have recommended measures such as increasing public spending in rural areas and providing incentives for job creation outside agriculture. Direct benefit transfers to low-income groups could also help mitigate the impact of rising prices on their budgets, enabling them to continue participating in the economy.
Experts also called for a careful balance between managing inflation and sustaining growth. While inflation-control measures are necessary, they should not stifle growth or disproportionately affect vulnerable populations. The government's focus on providing targeted support to weaker sections of society could help reduce the negative impact of inflation on overall economic activity.
Recent Reforms and Their Impact In the Union Budget of 2024-25, the government introduced a range of income tax reforms that offered significant relief to taxpayers. These included the relaxation of income tax slabs for individuals earning up to Rs 10 lakh and an increase in the standard deduction for salaried employees and pensioners from Rs 50,000 to Rs 75,000. Family pensioners also saw their standard deduction rise from Rs 15,000 to Rs 25,000. These measures provided a welcome boost to household income and helped improve financial stability for a large section of the population.
Additionally, the employer’s contribution to the National Pension Scheme (NPS) for private-sector employees was increased from 10% to 14%, which further incentivized long-term savings and retirement planning. These reforms aimed to ease the tax burden on middle-class families and improve their disposable income, contributing to economic stability.
Industry Recommendations for Budget 2025 Industry representatives, including major bodies such as the Confederation of Indian Industry (CII), the Federation of Indian Chambers of Commerce & Industry (FICCI), and the PHD Chamber of Commerce and Industry (PHDCCI), have also submitted their recommendations for the 2025 Union Budget. They are calling for broad-based tax reforms to simplify capital gains tax and compliance procedures for businesses, particularly small and medium enterprises (SMEs). The introduction of a single certificate of origin for multiple bills of entry, simplifying customs duties, and reducing compliance burdens are among the proposals that aim to ease the process of doing business in India.
In addition, industry bodies are advocating for a reduction in tax deducted at source (TDS) provisions and the creation of a dedicated dispute resolution mechanism for tax-related issues. Simplifying the tax filing process and reducing the time and cost involved in tax disputes could significantly improve the ease of doing business in India, which could in turn attract more foreign investment and stimulate job creation.
For Goods and Services Tax (GST), industry representatives have suggested the introduction of a simplified, three-rate GST structure, known as GST 2.0. This structure could streamline tax administration and improve compliance, benefiting both businesses and consumers. Another key recommendation is the inclusion of all expenses in the input tax credit chain, which could improve cash flow for businesses and reduce the overall cost of production.
Customs and Trade Reforms Customs-related proposals include reducing tariffs on critical raw materials, which could help industries that rely on imported goods. This would lower production costs for several industries, including manufacturing, pharmaceuticals, and electronics. Simplifying the appeal process for customs duties and introducing a more streamlined method for certificate verification could reduce delays in trade, ensuring smoother supply chains and better market access for Indian businesses.
These industry-focused recommendations aim to create an environment where businesses can thrive, ensuring that India’s economic growth is sustainable and inclusive. By simplifying tax processes, reducing trade barriers, and providing targeted support to businesses, the government can create a more conducive environment for entrepreneurship, innovation, and investment.
Conclusion: Preparing for Sustainable Growth As India prepares for its Union Budget 2025, the emphasis should be on implementing reforms that balance fiscal prudence with long-term growth objectives. Reducing income tax rates, improving savings, addressing inflationary pressures, and supporting job creation are all essential components of a strategy to boost India’s economy. The government’s commitment to creating a “Viksit Bharat” by 2047 requires bold and transformative policies that can propel India to the forefront of the global economy. The upcoming budget will play a crucial role in shaping India’s economic trajectory, and it is imperative that policymakers take decisive action to ensure the country remains on a path of sustainable, inclusive growth.
