The interim budget will see measures to boost the rural economy

- The government wants more and more people to migrate to the new tax system

Efforts to rein in inflation and boost consumption and the rural economy are likely to accelerate when the Prime Minister presents his sixth consecutive budget on February 1. Experts said one way to boost consumption is to put more money in people's hands, and one of the possible ways to do that is to reduce the tax burden by tinkering with tax slabs or increasing the standard deduction. Another proposal relates to increased funding under the Rural Employment Guarantee Scheme MGNREGA and more payments to farmers.

Women and marginalized communities may get additional relief as part of the finance minister's efforts to boost consumption ahead of the general elections. Generally, interim budgets, which are presented in the Lok Sabha before general elections, do not contain new tax proposals or new schemes. In the interim budget, the government will seek permission from Parliament to meet its expenditure for 4 months of the financial year 2024-25. It may contain proposals to address immediate economic problems, which cannot wait 4 months after the formation of the new government when the full budget is presented. There is an urgent need to address issues related to sluggish consumer demand in the economy.

Consumer goods companies have hiked prices for 8-10 quarters, mainly due to rising input costs. So, the impact of the global supply chain, rising input prices, the impact of inflation, rising interest rates, are all impacting lower incomes. It is not only the rural, it is the poor sections of the urban areas where these problems are seen. A major impact of inflation is being felt by the poorer sections of the society as the number of loan defaults has increased significantly. Agricultural growth has not been as expected by the government. There was a plan to double agricultural income, we have not seen it yet due to inflation. According to advance estimates of GDP, agriculture sector growth is expected to decline from 4 per cent in 2022-23 to 1.8 per cent in the current fiscal.

Economists said the main purpose of the vote-on-account is to allow the government to spend money on salaries, wages, interest payments and debt servicing for four months of the next fiscal year. But, if there is a certain section of the society which is under stress, can we wait for 4-5 months before taking any action? If in 5 months, if we do nothing, the situation can go from bad to worse. April-November Index of Industrial Production data showed that production of consumer durables fell to 0.6 percent from 5.3 percent in the same period last year.

One way to increase consumption demand is to tinker with the new tax regime by making it more attractive, thus leaving more money in the hands of taxpayers. Changes in tax slabs are always a matter for consideration in the budget. There may be pressure on the government to include deduction for home loan interest in the new tax regime. The government anyway wants more people to migrate to the new tax system, which has lower rates but with fewer exemptions, from the old tax system in which taxpayers could claim deductions for certain expenses like home loans, children's education.