The phase of relief that started with a big tax rebate a day ago may continue even further. One of the intentions of the government behind the relief given to income taxpayers in the General Budget 2025-26 is that the general public spends the remaining amount in the market.

This will increase demand which will help boost the country's sluggish economy. But this will not be the only step taken by the government.

Adjustment in GST rates possible

In fact, after this, efforts will continue at other levels as well so that the economy gets a boost from domestic demand. In this sequence, the first decision on adjustment of GST rates is likely to be taken in the next few weeks. While the second step may come in the form of reduction in interest rates by RBI this week.

Interest rate cut possible

• Experts estimate that interest rates can be reduced by 0.25 basis points at present. This will boost the demand for real estate and automobiles.
• Senior officials of the Finance Ministry believe that after the change in the income tax system, it has now become necessary to adjust the rates of goods and service tax.
• A high-level committee has already been formed to change the GST rates. The reports of the said committee, headed by Bihar Deputy Chief Minister Ashok Chaudhary, are awaited. This can also pave the way for reducing the existing four tax slabs of GST.
• The second step can be seen in the monetary policy review to be presented by the RBI on February 7, 2025. Some other research agencies including Bank of America have expressed hope in their reports that a cut in interest rates by 0.25 percent is possible.
• Recently, RBI provided an additional amount of Rs 1 lakh crore to the banks so that they can distribute more loans. This is being seen as a preparation to reduce the interest rates.
• The reduction in interest rates by the central bank can help the real estate and automobile sectors to boost demand. This thinking of the government has been reflected in both the Economic Survey presented two days ago and the Union Budget presented a day earlier.

Indications seen in economic survey

The Economic Survey clearly states that there is instability at the global level and the country's economy will have to be accelerated only by increasing domestic demand. Finance Minister Nirmala Sitharaman had said at the beginning of her budget speech that we are facing adverse geopolitical conditions, which indicate a slowdown in the global economy in the medium term.

Domestic demand may increase by 10%

In this regard, the assessment of K V Subramanian, former Chief Economic Advisor, Ministry of Finance, is important that due to the exemption given in personal tax in the General Budget 2025-26, it is possible to increase domestic demand by up to 10 percent, which can increase the economic growth rate by an additional two percent.

He has made this assessment on the basis of an additional amount of Rs 1 lakh crore being saved with the income tax payers due to the income tax exemption. The Finance Minister has mentioned in his budget speech that the government is giving up income tax collection of Rs 1 lakh crore due to the said exemption.