By Rameesh Kailasam
India has been facing inflationary pressures for some time now and there is a pressing need to induce a consumption-driven demand to give a fillip to the economy. India’s retail inflation, which is measured by the consumer price index (CPI), eased to a four-month low of 4.87% in October 2023 from 5.02% in September this year, according to the data from the Ministry of Statistics and Programme Implementation. The lowest CPI this year was recorded in May at 4.25%. In the last two years, CPI hit the highest of 7.79% in April 2022, and the lowest of 4.06% in January 2021. RBI projects the headline inflation or the CPI for 2023-24 at 5.4%, from 5.1% earlier.
The government has led from the front and has taken numerous steps to effectively handle the situation. These included the banning of the export of several items, quelling prices of various commodities, and timely strategic interventions. For example, onion prices have been volatile since they first rose in August and soon after, the government imposed an export duty of 40% as they saw that a rise in exports was causing prices to spin out of control. The lowering of wheat stock limits to fight food inflation was another instance, and the list goes on. We have seen the secretaries in ministries such as consumer affairs and food engaging with the public through the media and regularly informing them about the various steps being taken. This has sent a positive message of a government in the saddle and visibly in control of this rather precarious situation.
The government’s handling and timely inputs in these difficult conditions have been applauded by global bodies like the International Monetary Fund (IMF), which has positively revised India’s growth estimate to 6.3% for FY24 against an earlier forecast of 6.1%. Its optimism for India is not just restricted to the present. The IMF also expects India to increase its contribution to global growth over the next five years as the economy continues to grow fairly rapidly. It holds the view that India will likely account for 18% of world growth by 2028, up from 16% currently.
Another prominent international watchdog, the World Bank, has said that “Notwithstanding external pressures, India’s service exports have continued to increase, and the current account deficit is narrowing.” Although headline inflation is elevated, it is projected to decline to an average of 5.2% in FY24. The World Bank has also maintained a sound 6.3% real GDP growth for India in FY24, and these figures become quite remarkable, especially when we look at the crumbling economic situation in many developed as well as developing countries of the world. It has also applauded the Indian economy’s strong resilience to numerous external shocks and variabilities.
I am firmly of the view that this momentum must be continued. Data from the last two years suggests that there has been increased revenue buoyancy in both direct as well as indirect taxes and a lot of government credit leakages have been plugged. The Central Board of Direct Taxes (CBDT) has said that direct tax collection after deducting refunds increased by 160.17% to `16.61 trillion in FY23 (provisional figures) from `6.38 trillion in 2013-14, and India witnessed a tax buoyancy of 2.52 in FY22, the highest in 15 years.
These conditions will provide headroom for the government to look at both direct and indirect taxes which will increase tax receipts, as there is a rise in the disposable income of the people. The Keynes theory could play out as more money will lead to increased production, more production would create additional jobs, and ultimately, this will generate extra revenue for the government.
Under these circumstances, it will only be natural that in the coming budget, the government will not only keep a stand of stability and predictability but will attempt to lower the tax incidence by using this unique positive economic environment in India to further boost the consumption story. A further relook at the on-ground issues that affect different businesses is required to truly bring “Ease of Doing Business” and ensure that the frictions of compliance and inverted scenarios in the GST space also get ironed out quickly.
The future looks bright as India is all set to become the third-largest consumption market by 2027. Going by the government’s top-rate handling of composite economic issues, a win-win situation for all stakeholders is undoubtedly on the anvil.
The author is the CEO of Indiatech.org (TSIA). Views expressed are personal.