Don’t expect tax exemption in next budget

A person familiar with the discussions in the government said the finance ministry attributes its optimism about economic growth and resurgence of private investment to strong credit offtake and a positive response from small businesses at a time when global businesses are eyeing an alternative to China. Huh.

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“Multilateral agencies may be downgrading their global growth forecast for next year, but India’s is not that bad. We are already spending a lot on rural welfare schemes like Pradhan Mantri Awas Yojana and National Rural Employment Guarantee Scheme (NREGS) which provide a boost to rural consumption. Anecdotal evidence suggests that businesses facing growth prospects, especially small businesses, are in investment mode as multinationals seek supply chain options amid disruption in China. Big companies will also invest,” the person cited above said on condition of anonymity. Also, fiscal policy cannot run contrary to monetary policy, which is trying to reduce inflation.

Also, with the Liz Truss government in Britain facing political backlash after proposing sharp tax cuts, policymakers here are not lost, the person said, suggesting that fiscal responsibility remains an important goal for the government. .

Last month, Truss resigned after 44 days in office after his government’s “high growth, low tax” economic plan, which included £45bn of unfunded tax cuts, hammered the pound sterling, to the government. Raised the cost of borrowing and attracted criticism from the international community. Fund.

The cut in the personal income tax rate is seen by industry watchers as a consumption-boosting measure, as businesses make new investments when their capacity utilization crosses a threshold that allows them to book for future orders. assures about

However, coordinated monetary policy action by several central banks to fight war and inflation in Europe has created uncertainties for economic growth globally and the recovery in private investment in India.

This gives rise to an expectation that consumption as a growth engine may receive more policy incentives.

Sanjiv Bajaj, chairman and managing director of Bajaj Finserv and president of lobby group Confederation of Indian Industry (CII), said in a statement on Saturday that the government should consider reduction in personal income tax rates in its next reform effort. Because this will increase disposable income and revive the demand cycle.

The industry group stressed the need to “revive consumer demand along with investment to bring vibrancy to the economy”.

An email sent to the finance ministry seeking comment for the story on November 16 remained unanswered till press time.

Inflation can be contained when monetary and fiscal policies simultaneously address this issue, said Devendra Kumar Pant, chief economist at India Ratings and Research (Fitch Group).

Official data for September showed that non-food credit to industry remained strong.

Credit to industry increased by 12.6% as against a growth of 1.7% a year ago, while credit to large industry increased by 7.9% as against a contraction of 2.1% a year ago.

Medium industries registered credit growth of 36.2% in September, almost steady compared to 37.1% in the same month last year, while credit to micro and small scale industries grew by 27.1% compared to 13.1% in the same time a year ago. increased, the Reserve Bank said in a statement. statement earlier this month.

After two consecutive years of low disbursements, India is finally seeing healthy signs of credit to the micro, small and medium enterprises (MSME) sector, said Sanjay Sharma, founder and managing director of non-bank finance company Aye Finance.

He said that the distribution of his business is increasing every quarter in the current financial year.

“After the pandemic, when they are rebuilding their business, the need for adequate funds to run their operations is driving the demand,” he explained.

Pant of India Ratings said that sectors like infrastructure and electric vehicles are now seeing good investment demand.

“However, strong demand growth is critical for a sharp and sustained pick-up in aggregate investment demand,” he said.

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