India boosts middle-class with significant income tax cuts

In early January 2025, India presented its annual budget with a focus on the salaried middle class amid economic challenges. The government, led by Nirmala Sitharaman, proposed significant income tax cuts, raising the tax exemption threshold to $14,800 from $8,074, aimed at increasing household consumption. Rising unemployment and sluggish economic growth prompted these measures, with youth unemployment reported at 7.5% earlier in January. Additionally, the budget emphasized boosting the agriculture sector to support food production and farmer income, while addressing the needs of India's expanding gig economy. The context of the budget is reflective of a projected slow growth rate for India, which has faced several rounds of cuts from an initial growth forecast of 7.2% down to 6.4%. Experts believe these adjustments stem from a consumer sentiment impacted by weak domestic demand and a depreciating rupee. In parallel, the Indian government aims to reduce the fiscal deficit target from 4.9% to 4.4% of GDP by the fiscal year ending in March 2026, balancing the need for fiscal discipline with economic stimulation. Investments in infrastructure and public spending were prioritized while addressing inflation and market volatility. A broader strategy included enhancing funding in various sectors such as agriculture and manufacturing, with plans to target high-yield crops to support 17 million farmers, effectively raising subsidy limits for them. This multifaceted approach aims to create jobs, stimulate economic growth, and stabilize an economy projected to experience its slowest growth in four years. The government also committed to formalizing the gig economy, recognizing its potential to employ over 23 million people by 2030, thus intertwining economic growth with modern labor market dynamics. In conclusion, the government seeks to create an inclusive economic environment through nuanced tax policies geared towards rejuvenating middle-class financial conditions. This budget signals a strategic pivot towards recovery, reflecting the interplay between employment challenges and the overarching goal of sustained economic growth.