“Incomes must rise with the economy, and so will the taxes,” Finance Secretary Tuhin Kanta Pandey said. File
| Photo Credit: PTI
With a non-inflationary Budget marked by fiscal discipline, the Centre has done its bit to support growth and aid monetary policymaking, India’s top Finance Ministry official said on Tuesday (February 4, 2025), signalling that monetary and fiscal policies must not work at ‘cross purposes’ as the economy will gain more traction if interest rates are eased once inflation is reined in.
The subtle nudge to the central bank assumes significance, as it comes a day before the Reserve Bank of India’s Monetary Policy Committee (MPC) convenes for its bi-monthly review. The six-member MPC’s decision on whether to hold interest rates yet again or kick off a rate cut cycle will be announced by RBI Governor Sanjay Malhotra on Friday, February 4, 2025.
“We have maintained the fiscal consolidation part that’s important because we need to be non-inflationary in our approach,” Finance Secretary Tuhin Kanta Pandey said at an event hosted by Assocham. He was referring to the Centre going beyond its fiscal deficit targets this year, as well as next year, for which the fiscal gap has been pegged at 4.4% of GDP.
“We have to work within a certain fiscal regime, and we have, to that extent, aided the monetary authorities to see that if they have to do what they have to do, we are supportive. The fiscal policy and monetary policy need to work in tandem, not at cross purposes… because a lot more benefit will come with monetary easing if we are able to maintain the inflation under control,” Mr. Pandey remarked.
“In any case, inflationary policies can really work only in the short term in terms of pushing growth, but for sustained growth, we need to have a good grip on inflation,” the Secretary underlined.
Dismissing concerns about India’s tax base shrinking due to the breaks on annual incomes of up to ₹12 lakh, Mr. Pandey said the government has to be “compassionate” to taxpayers “who have been compassionate to us”.
“We have had a 20-25% growth in personal income tax in the last three years. Are we shrinking the tax base? The point is that incomes must rise with the economy, and so will the taxes. We don’t really gain very much loading taxes on the same people over and over again,” he said, promising further reforms in the tax administration regime in the coming years so it won’t be seen as ‘extortionist’ or ‘insensitive’.
Jan. inflation likely cooled to 4.5%-4.7%
India’s retail inflation likely eased to a five month low of 4.5%-4.7% in January, from 5.2% in December, Bank of Baroda economists said on Tuesday, citing a significant cooling in the price rise of essential commodities to 4% compared to 5.4% in the previous month. On a sequential basis, the bank’s monthly Essential Commodities Index declined by a sharp 2.4%, after 0.5% dip in December, economist Aditi Gupta said.
Published – February 04, 2025 10:54 pm IST
