Economy

₹1 lakh crore tax bonanza eases demand uncertainty, to spur private investment, says CEA Anantha Nageswaran

The mega personal income tax bonanza amounting to ₹ 1 lakh crore announced in the Budget FY26 has reduced demand uncertainty in the economy, thereby giving a nudge to private sector capital formation, chief economic advisor V Anantha Nageswaran said on Monday. 

At a post-budget event organised by the Confederation of Indian Industry (CII), he said that overall effective public capex has gone up in Budget 2025-26 to ₹19.8 lakh crore (from BE of ₹18.7 lakh crore in FY25) if one were to aggregate Centre capex allocation with States’ Grant-in-aid along with capex related to Central PSEs.

“As the base becomes larger and larger, it may not be easy to maintain same pace of growth. What you see in corporate earnings settings also applies here,” he added.

Driving forces

Meanwhile, although it has not been openly stated in the Budget speech, it is quite clear that the current state of the world and geo-political uncertainties is the driving force behind many of the proposals in the Budget including the widely discussed tax exemption limit of ₹12 lakhs and rationalisation of income tax slabs, Nageswaran said. 

“Apart from boosting disposable income in the hands of taxpayers, the tax relief boosts consumption or savings in whichever proportion they would like to do so. But both would be positive for the economy.”

There is a perception that private sector is not investing as much as one would like them to do. “I can understand the uncertainty post-covid that private sector was faced with. But data now shows that private sector has indeed invested although the pace is not what one would like to see”.

The latest tax relief has reduced demand uncertainty, giving nudge to private sector for capital formation. “This is an important policy direction that tax cut suggests,” he said. 

He also highlighted that Budget has carried forward the work done on employment and skilling schemes. “Budget actually is a clear recognition and demonstration of government’s commitment in ensuring that Indian economy is able to grow on strength of domestic demand levers in a world that is going to remain uncertain interns of politics and economics,” Nageswaran added.



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