Union Budget 2025: Tax cut meant to address ‘angst’ and to kickstart a slowing economy, says Finance Secretary

Finance Secretary Pandey explains the government's decision to slash income tax to boost economy and address slowdown concerns.

The Centre’s decision to significantly slash the income tax payer’s burden was aimed at addressing some “angst” that the government had noticed in recent months as well as to give a fillip to the economy’s weakening growth impulses with a broad-based boost to demand, savings, and investments, Finance Secretary Tuhin Kanta Pandey said on Sunday (February 2, 2025).

While the government will forego ₹1 lakh crore of revenue through the move to make annual incomes up to ₹12 lakh tax-free and rejig the tax slabs and rates across the board, Mr. Pandey told The Hindu that in aggregate terms, this will spur the economy in a manner which “probably can’t even be fathomed”.

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“The fact is that there was also angst, which I think the government noticed. The second is also the economic reason [slowdown]. This is a good and a new deal,” the Secretary said.

“Normally, we say an investment multiplier is more than the consumption multiplier… But the state of economy that we have today, it requires all kinds of engines to be fired. Therefore, agnostic of that, I think we should really be trusting the people’s wisdom, whatever they want to do. It will come back and the economy will get a boost,” he said, adding that “Lakshmi baantne se badhti hai (distributing wealth also increases wealth)“.

“If the money comes to the government, it will be put in a certain way. If the money goes back to people, the money is distributed in a more equitable way and I’ll explain why. If I give the money to you, you have three choices. You can consume, as per your choice — be it on travel, dining, services, or consumer durables — which will be much more broad-based and not just be in steel and cement,” he pointed out.

If people choose to save instead of consuming, that would also help, as India’s savings rate needs to go up and bank deposits need to grow to support credit flows to critical segments like micro, small and medium enterprises (MSMEs), the Finance Secretary said.