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Don’t expect any tax woes in the next budget

The Treasury Department is drawing its optimism about economic growth and the recovery of private investment from healthy credit receipts and positive feedback from small businesses at a time when global companies are eyeing alternatives to China, said a person familiar with discussions in government.

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“Multilateral agencies may be downgrading their global growth forecast for next year, but the situation in India is not that bad. We already spend quite a lot on rural social services, such as Pradhan Mantri Awas Yojana and the National Rural Employment Guarantee Scheme (NREGS), which strongly support rural consumption. Anecdotes suggest that companies with growth prospects, especially small businesses, are investing as multinationals explore alternatives to supply arrangements amid disruptions in China. Big companies will also invest,” said the person mentioned above on the condition of anonymity. Also, fiscal policy cannot conflict with monetary policy, which tries to curb inflation.

Besides, the political setback faced by Liz Truss’ government in the UK after proposing sharp tax cuts has not gone unnoticed by policymakers here, the person said, suggesting that fiscal responsibility is an important goal for the government.

Last month, Truss resigned after 44 days in office after her government’s “fast-growth, low-tax” economic plan, including £45bn in unfunded tax cuts, hammered the pound, driving up borrowing costs for the government and was criticized by the International Monetary Fund. Fund.

Personal income tax SOPs are viewed by industry watchers as a consumption-stimulating measure, as companies tend to make new investments when their capacity utilization exceeds a threshold that gives them confidence in future orders.

However, the war in Europe and the coordinated monetary policies of several central banks to fight inflation have created uncertainties for global economic growth and the recovery of private investment in India.

This raises the expectation that consumption as an engine of growth can receive more policy impulses.

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

The industry group stressed the need to “revitalize both investment and consumer demand to bring vibrancy to the economy”.

An email sent to the Treasury Department on Nov. 16 asking for comment on the story went unanswered until it went to press.

Inflation control can happen when monetary and fiscal policies work together to tackle the problem, says Devendra Kumar Pant, chief economist at India Ratings and Research (Fitch Group).

Official data for September showed non-food lending to industry remained robust.

Lending to manufacturing rose 12.6% from a growth of 1.7% a year ago, while lending to major manufacturing increased 7.9% from a contraction of 2.1% a year ago.

Mid-sized industries recorded credit growth of 36.2% in September, almost stable compared to 37.1% in the same month last year, while lending to micro and small industries increased by 27.1% compared to 13.1% at the same time a year ago, the Reserve Bank said in a statement earlier this month.

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

He said his company’s payouts have increased every quarter in the current fiscal year.

“After the pandemic, when they are rebuilding their business, the need to have enough money to run their business increases demand,” he explains.

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

“However, for a sharp and sustained increase in aggregate investment demand, strong demand growth is crucial,” he said.

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