The Narendra Modi government has handed out personal tax lollies to the middle class, promised a new income-tax bill next week, rejigged customs tariffs, kick-started a process to introduce regulatory reforms, unveiled measures to assist the poor, youth, farmers and women — and still managed to cap fiscal deficit at 4.4 per cent of the nominal GDP.

“The new structure will substantially reduce taxes of the middle class and leave more money in their hands, boosting household consumption, savings and investment,” finance minister Nirmala Sitharaman said while presenting her eighth budget in Parliament on Saturday.

Taxpayers were chuffed by the announcement that people earning up to ₹12.75 lakh a year would not have to pay tax under the new regime — a substantial jump from the earlier threshold of ₹7 lakh.

A finance ministry note said that 1 crore assessees, who earlier paid taxes varying between ₹20,000 and ₹80,000, would now escape the talons of the taxman.

The direct tax reliefs will cost ₹1 lakh crore.

The tax sweetener is expected to drive the switch to the new regime. “Over 75 per cent of the income-tax filers have already moved to the new regime,” finance secretary Tuhin Pandey said at a news conference later in the day. “We expect almost every taxpayer to shift eventually.”

The fine print in the budget documents showed that the super-rich — those with incomes of above ₹5 crore a year — also had reason to cheer since the surcharge had been trimmed from 37 per cent to 25 per cent under the new tax regime.

Taxpayers have also been permitted to claim nil value on two self-occupied properties without any conditions. Earlier, this benefit was restricted to just one property and was contingent on fulfilling certain conditions.

Not everyone is crowing about the tax reliefs.

Rathin Roy, Distinguished Professor at the Kautilya School of Public Policy, said the tax relief only benefited the “wealthy” and not the common man. Roy argued that anyone who paid income tax in India belonged to the wealthiest segment of the population, and it was misleading to categorise them as the “middle class”.

He explained that the government’s decision to lower the tax burden has made the tax system more regressive, and it now favours the rich more than before.

Previously, a person had to earn 3.5 times the national per capita income to start paying income tax. Now, they need to earn six times the per capita income. This means that only the top 5-10 per cent of the population is liable to pay income tax, further reducing the tax burden on the wealthy.

Modest spending

There has also been some disappointment that the government failed to cobble together a credible strategy to jumpstart an economy that is projected to grow by just 6.4 per cent this year, the slowest pace of growth in five years.

It isn’t expected to get any better next year. The latest Economic Survey expects the Indian economy to trundle along sedately with the growth rate projected at anywhere between 6.3 and 6.8 per cent.

Sitharaman raised capital expenditure to ₹1.12 lakh crore – a piffling 1 per cent increase over last year’s budget estimate of ₹1.11 lakh crore – clearly signalling that she expected the private sector to dip into its cash trove and grease the engines of growth.

Observers voiced scepticism at some of the revenue projections. Taxes on income are expected to surge by over 21 per cent to ₹1,438,000 crore against last year’s budget estimate of ₹1,187,000 crore. In contrast, corporate tax collections are projected to increase by just 6 per cent to ₹1,082,000 crore while the GST kitty will swell by around 11 per cent to ₹1,178,000 crore.

It was not immediately clear how income-tax collections could grow so rapidly after the Centre claimed that it had decided to forgo ₹1 lakh crore in direct taxes – most of it on account of the increase in the exemption threshold to ₹12.75 lakh a year.

The government also spelt out a glide path to trim central government debt as a percentage of the GDP. It intends to bring it down to the level of about 50 per cent by March 31, 2031.

But this isn’t as good as it sounds.

The Fiscal Responsibility and Budget Management Act requires the Centre and the states to try and limit their combined debt to 60 per cent of the GDP by March 2025. The break-up is 40 per cent for the Centre and 20 per cent for the states.

The general government debt (the Centre plus the states) had swelled to over 80 per cent of the GDP after the pandemic and has been an issue that has weighed on India’s sovereign credit rating.

Farm push

There is an attempt to boost productivity in the farm sector with the launch of a national mission to push high-yielding crops. It will provide a special focus on pulses and cotton production. The limit for subsidised credit to farmers has been raised to ₹5 lakh from the earlier ₹3 lakh for loans under the Kisan credit card scheme.

The government will also launch missions to push manufacturing and exports, Sitharaman said without going into details.

She announced plans to provide identity cards to almost 1 crore gig workers and extend healthcare benefits tothem under the PM JanArogya Yojana.

The budget proposed to raise the foreign investment limit in insurance to 100 per cent from the current 74 per cent. It also provided a presumptive taxation regime for non-residents who provide services to a resident company that sets up or operates an electronics manufacturing facility.

A new ₹10,000-crore fund will be created to spur startups. The budget extended a tax break under Section 80 IAC for startups incorporated before April 1, 2030. This section was introduced in 2017 and allowed startups to claim a 100 per cent deduction on profits for any three successive years.

The other measures included a new policy for labour-intensive sectors like leather and footwear and an ambitious scheme to turn India into a global hub for toy manufacturing.

On Friday, the Economic Survey suggested that India needed to roll back heavy-handed regulations and introduce structural reforms if it wanted to achieve global competitiveness.

The finance minister seemed to respond by announcing plans to establish a committee that would “review all non-financial sector regulations, certifications, licences, and permissions”. The committee will submit its recommendations within a year.

Also, the Financial Stability and Development Council — the apex body for financial regulators including the RBI and Sebi — will carry out an exercise to evaluate the impact of the current financial regulations.