Tax Strategies Pave Path for India's Vision of Sustainable Growth

Ernst & Young emphasizes India's need for optimal tax buoyancy to achieve its Viksit Bharat vision. The report suggests balancing growth and fiscal consolidation through enhanced tax efforts, structural reforms, and strategic spending. Personal income tax adjustments aim to boost demand, despite moderated revenue growth. Long-term fiscal sustainability remains crucial.

Ernst & Young has highlighted the need for India to maintain a tax buoyancy between 1.2 and 1.5 as part of its strategy to achieve the Viksit Bharat vision and sustain a medium-term growth rate of 6.5-7.0. Tax buoyancy measures tax revenue growth in response to economic expansion, underscoring its role in India's fiscal strategy.

According to EY's Economy Watch, managing the balance between growth demands and fiscal consolidation is vital amid economic uncertainties. The Government aims to increase the tax-to-GDP ratio from 12.0% in FY26 to 14.0% by FY31 to create space for infrastructure, social investments, and green growth, while tax relief aims to drive consumption through increased disposable income.

The report projects a moderation in tax revenue growth, with personal income tax buoyancy expected to drop from 2.09 in FY25 to 1.42 in FY26. Despite this, the fiscal plan aims to establish a dynamic environment for sustained growth. EY's report also warns about a persistently high debt-to-GDP ratio, potentially leading to elevated interest payments. The Government's fiscal deficit efforts have shown progress, aiming for a 3% target eventually, accompanied by job incentives fostering formalization of businesses.