New Delhi – External member of the Reserve Bank of India’s Monetary Policy Committee (MPC), Saugata Bhattacharya, highlighted that while concessions on direct income tax and proposed GST reforms may increase consumer spending, the external economic environment continues to pose a significant challenge to India’s growth trajectory.
Tax incentives aimed at boosting demand
Bhattacharya noted that income tax reductions and GST restructuring could lead to higher disposable income for consumers, potentially reviving consumption in rural and urban areas. These fiscal incentives are expected to enhance consumption momentum, particularly ahead of the festive season.
Foreign headwinds temper optimism
However, Bhattacharya cautioned that the external environment remains uncertain, with supply chain disruptions, geopolitical tensions, and tariff policies abroad likely to exert downward pressure on growth. Such volatility may counterbalance the domestic stimulus from tax benefits.
Cautious stance in MPC’s August policy review
MPC members, despite recognising room for policy easing, decided to retain the repo rate at 5.50 per cent and retain a neutral stance in the August review. This cautious approach stems from continuing global trade uncertainties and evolving inflation dynamics, indicating that full transmission of previous rate cuts is still unfolding.
Conclusion
While fiscal measures forecasting tax relief signal hope for stronger domestic consumption, India’s economic outlook is tempered by persistent global risks. Bhattacharya’s remarks reflect a balancing act between internal demand stimulus and external caution in policy framing.