New Delhi, Feb. 9 -- When finance minister Nirmala Sitharaman announced tax cuts and sops for taxpayers in her latest budget, she said: "Slabs and rates are being changed across the board to benefit all tax-payers. The new structure will substantially reduce the taxes of the middle class and leave more money in their hands, boosting household consumption, savings and investment." Changes included pushing forward the starting point of income tax from an annual income of Rs.7 lakh to Rs.12 lakh, and a revision in tax slabs.

The government can boost consumption in the economy in two ways. The first, and more direct, method is for the government to itself spend more, on areas like infrastructure, or social programmes like the rural-employmen...