From Income Tax Relief To GST Cuts: What Impact Will These Decisions Have On Economy? Here's What CEA Says

India's Chief Economic Adviser (CEA) V. Anantha Nageswaran said on Monday that the GST reforms and the income tax relief announced in the Union Budget will have a multiplier effect on the economy, propelling the growth rate to the upper end of the 6.3-6.8 per cent range in the current fiscal year, i.e., 2025-26.

 

Addressing a program, Nageswaran said, "GST 2.0 is a very historic reform. I am quite convinced that it will give a significant boost to domestic demand. Besides indirect taxes, concessions and reliefs have also been announced under the Union Budget. With a multiplier effect, these will certainly boost the GDP numbers."

 

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Chief Economic Adviser (CEA) V. Anantha Nageswaran said on Monday that the combined impact of direct tax relief through income tax cuts and indirect tax relief through GST rate reductions would exceed Rs 2.5 lakh crore. However, he also noted that certain other uncertainties could temper this effect.

 

Addressing concerns about revenue impact, Nageswaran said, "Experience shows that despite rate cuts, collections have increased. We've seen good growth in non-tax revenues. Overall revenue growth is in the right direction. The festive season will continue till the end of the year. We're confident that the fiscal math will be very good in the current financial year."

 

On quarterly growth, Nageswaran hinted that India's GDP growth rate for the second quarter could be around 7 per cent.

Nageswaran expressed confidence that there would be no hindrance to medium to long-term Foreign Direct Investment (FDI) in the country. GST and regulatory relaxations would act as catalysts for FDI. He said, "Despite additional tariffs, India's medium to long-term investment attractiveness will not be affected."

Finance Minister Nirmala Sitharaman said that the GST reforms, which came into effect on Monday, would benefit the poor, youth, farmers, women, shopkeepers, and entrepreneurs. She stated that the 5 and 18 per cent tax rates would not only promote local manufacturing but also strengthen cooperative federalism.

 

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The Finance Minister took a dig at the opposition, referencing Prime Minister Narendra Modi's address to the nation on Sunday. She said, "We all need to work towards accelerating development, making it easier for businesses to operate, and making India attractive for investment." She added, "It's unfortunate that despite a positive address, the opposition party and its social media machinery spread negativity."