Indian Prime Minister Narendra Modi’s government has unveiled an annual budget focused on appealing to the country’s middle class and spurring economic growth by boosting agriculture and manufacturing.
Announcing the annual budget in parliament yesterday, Finance Minister Nirmala Sitharaman said people earning up to 1.28 million rupees ($14,800) per year will not have to pay any taxes, raising the threshold from 700,000 rupees ($8,074).
The government also lowered tax rates for people earning above the new threshold, as the world’s fifth-largest economy aims to boost domestic demand amid uncertainty over the global economic outlook due to potential new tariff barriers.
“The new structure will reduce taxes on middle class and leave more money in their hands, boosting household consumption, savings and investment,” Sitharaman said.
The move will result in an annual one trillion rupees ($11.6 billion) hit to Treasury revenues.
The world’s most populous country is expected to post its slowest growth in four years next year amid frail urban demand and weak private investment, while stubbornly high food inflation has dented disposable incomes.
Measures to assist the poor, youth, farmers and women were also included in the budget for 2025-26, Sitharaman said.
Per capita income is about $2,700 for India’s population of 1.4bn, with about one-third considered middle class.
The tax cut is “likely to spur consumer demand and savings by the middle class that has faced challenges from elevated inflation and lower income growth”, Sakshi Gupta, economist at HDFC Bank, told Reuters.
To balance the revenue lost, the government has budgeted a modest increase in capital spending this year, which will rise to 11.21trn rupees ($129.3bn) in 2025-26 compared with a lowered 10.18trn ($117.4bn) in the current year.
Modi, in his third term as the country’s prime minister, has faced pressure to appeal to the country’s middle class and generate more jobs to help sustain growth.
The government will also boost productivity across the agriculture sector by launching a nationwide programme to push high-yielding crops, focusing on the cultivation of pulses and cotton production.
Sitharaman said the programme will target at least 17m farmers and raise the limit for subsidised credit offered to them from $3,460 to $5,767.
The government also plans to formally register India’s gig workers and ease their access to healthcare. Sitharaman said the government will issue them identity cards and help them access welfare initiatives.
India’s gig economy could employ more than 23m people by 2030, according to estimates by government think tank, NITI Aayog.
Sitharaman also announced a new fund for startups and said the government will provide more money to promote innovation in partnership with the private sector.
She also announced the Nuclear Energy Mission to drive India’s transition towards clean energy, with a goal of developing at least 100GW of nuclear power by 2047.
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