India ‘to stay world’s fastest-growing economy, despite headwinds’

The Indian economy is seeing ‘a speedy rebound’ on account of strong economic foundation, and that the country will continue to remain the fastest growing economy in the world, India’s Finance Minister Nirmala Sitharaman has said.

Speaking in the general discussion on the recent Union Budget, Sitharaman said the Budget has come at a time of “immense uncertainties and the changed global macro environment makes it challenging”.

She said: “There are issues which are of global concern which also have an impact on our own budget making. There is a continuation of global conflict in the Middle East, Russia-Ukraine war continues, stagnation in global GDP and sticky inflation in the emerging markets are all vitiating the atmosphere in entire developing economies.

“In three years prior to 2024-25, the GDP growth rate averaged about 8%. Only in two of the last 12 quarters has growth rate touched 5.4% or remains below it… on account of strong economic foundation, a speedy rebound is happening and we will take measures to keep our economy growing fastest as in the last few years,” she said.

When questioned about unemployment, Sitharaman cited data from the annual report of Periodic Labour Force Survey 2023-24 that said the Labour Force Participation Rate has increased from 49.8% in 2017-18 to 60% in 2023-24 and the unemployment rate has declined from 6% in 2017-18 to 3.2% in 2023-24.

She said private final consumption expenditure is expected to grow 7.3% in the current fiscal, driven by good rural demand. The private final consumption expenditure is estimated to be 61.8% of the nominal GDP, the highest since 2002-2003, she said.

Underlining that the Goods and Services Tax (GST) “has not been increased on even one item”, Sitharaman said that the GST Council was working to see where rate cuts were possible.

“The GST Council has gone into great detail looking item by item to see where rate reduction can happen and, equally, four rates or three rates or two rates or collapse into one rate is also being discussed,” she said.

The Finance Minister added: “At the point of GST’s introduction, on average, 15.8% tax could have been levied without additionally burdening the consumer. If that was the rate at which the GST rates were brought in, today, the rate has come down to 11.3%.”

New Income Tax Bill to come into force

The Union Cabinet, chaired by Prime Minister Narendra Modi, has approved the New Income Tax Bill announced in the recent Budget, which will replace the six decades old Income-tax Act, 1961.

The new bill seeks to make direct tax law simple to understand and not to impose any new tax burden. It will not have provisos and explanations or long sentences, the government said.

Finance Minister Nirmala Sitharaman had first announced a comprehensive review of the Income-tax Act, 1961 in July 2024 Budget.

India’s Central Board for Direct Taxes (CBDT) had set up an internal committee to oversee the review and make the Act concise, clear and easy to understand, which will reduce disputes, litigations, and provide greater tax certainty to taxpayers. Also, 22 specialised sub-committees have been established to review the various aspects of the Income Tax Act.

Public inputs and suggestions were invited in four categories – simplification of language, litigation reduction, compliance reduction, and redundant/obsolete provisions.

The income tax department has received 6,500 suggestions from stakeholders on review of the Income Tax Act.

After it is tabled in Parliament, the new bill will be referred to a Parliamentary standing committee on finance for further consultation.

The new law is expected to be around half the size of the current law, with 25%-30% fewer provisions.