New Delhi, Feb. 17 -- Ahead of the Union budget, there was a demand from various economic participants to stimulate consumption. The government delivered this in a balanced way by boosting the disposable income of individuals through tax cuts while keeping a tight leash on its fiscal deficit. No individual needs to pay any tax on their salary income up to Rs.12 lakh per annum in 2025-26, up from Rs.7 lakh in 2024-25. The tax outgo for richer individuals has also been cut. This will cost the exchequer Rs.1 trillion, according to government estimates.

Two obvious questions arise. Will these tax changes be sufficient to create a virtuous cycle of private final consumption expenditure (PFCE)? What would be the likely boost to real GDP growth...