New Delhi: The Confederation of Indian Industry (CII) on Sunday urged the Central government to reduce the income tax for individuals and cut excise duty on fuels to increase disposable incomes in the hands of consumers, which would increase spending thereby spurring economic growth.
As part of its wishlist in the run-up to Union Budget 2025-26, the apex business chamber has said that reducing the excise duty on fuels is crucial as fuel prices significantly drive up inflation, forming a substantial portion of the overall household consumption basket.
The central excise duty alone accounts for approximately 21 per cent of the retail petrol price and 18 per cent for diesel. Since May 2022, these duties have not been adjusted in line with the approximately 40 per cent decrease in global crude prices. Lowering excise duty on fuel would help reduce overall inflation and increase disposable incomes, according to the CII statement.
It also states that the gap between the highest marginal rate for individuals at 42.74 per cent and the normal Corporate Tax Rate at 25.17 per cent, is high. Further, inflation has reduced the buying power of lower- and middle-income earners. The Budget could consider reducing marginal tax rates for personal income up to Rs 20 lakh per annum. This would help trigger the virtuous cycle of consumption, higher growth and higher tax revenue.
CII has sought an increase in the daily minimum wage under the MGNREGS from Rs 267 to Rs 375 as suggested by the ‘Expert Committee on Fixing National Minimum Wage’ in 2017. CII Research estimations show that this will entail an additional expenditure of Rs 42,000 crore.
The business chamber has further suggested that the government increase the annual payout under the PM-KISAN scheme from Rs 6,000 to Rs 8,000. Assuming 10 crore beneficiaries, this will entail an additional expenditure of Rs 20,000 crore.
It has also come out in favour of an increase in the unit costs under the PMAY-G and PMAY-U schemes, which have not been revised since the scheme’s inception.
The CII has also suggested that consumption vouchers be introduced, targeted at low-income groups, to stimulate demand for specified goods and services over a designated period. The vouchers could be designed to be spent on designated items (specific goods and services) and could be valid for a designated time (like 6-8 months), to ensure spending. The beneficiary criteria can be defined as Jan-Dhan account holders who are not beneficiaries of other welfare schemes.
Highlighting the weakening trend in household savings, CII Director General Chandrajit Banerjee noted that “low returns on bank deposits compared to other avenues such as equities and funds, coupled with a higher tax burden on interest income, have made bank savings less attractive”.
Bank deposits as a proportion of a household’s financial assets have declined from 56.4 per cent in FY20 to 45.2 per cent in FY24. To encourage bank deposit growth, CII, in its budget proposals for 2024-25, has suggested taxing interest income from deposits at a lower rate and reducing the lock-in period for fixed deposits with preferential tax treatment from the current five to three years, which can help boost bank deposits.
“Domestic consumption has been critical to India’s growth story, but inflationary pressures have somewhat eroded the purchasing power of consumers. The government interventions could focus on enhancing disposable incomes and stimulating spending to sustain economic momentum”, Banerjee added.
(IANS)
