For Mahalakshmi R., who has been riding a bike taxi for nearly two years, every increase in fuel and food prices directly cuts into her daily earnings. What was once enough for three modest meals a day is no longer sufficient. “I earn an average of ₹700 to ₹1,000 each day, depending on the number of rides. I spend around ₹200 on fuel for my vehicle. Earlier I could manage food expenses within ₹250 a day. Now I skip meals because the prices of everything have gone up. Even idlis cost much more now,” she says, as she waits for the next ride request.

As fuel costs climb and food becomes increasingly unaffordable, fresh concerns over a possible return to large-scale work-from-home arrangements have added another layer of uncertainty for drivers like her, whose livelihoods depend entirely on people commuting to office each day.

From Chennai to the southernmost districts of Tamil Nadu, rising food prices are steadily tightening household budgets, with restaurants and eateries quietly revising menu rates upward every few weeks. The burden on the public has intensified further with hikes in fuel prices — thrice in 10 days. On Saturday (May 23), the Union government increased the prices (petrol: ₹105.31 and diesel: ₹96.98 in Chennai). This increase came after a hike of ₹3 on May 15 and 90 paise on May 19. The availability of LPG cylinders continues to remain a concern, with several consumers reporting delivery delays stretching up to two weeks in certain cases.

Takeaway troubles

From middle-class families and bachelors to hostel students and information technology professionals dependent on daily takeaways, people across Tamil Nadu say the cost of putting food on the table has risen sharply, even as incomes and salaries have largely remained stagnant.

“Ever since the LPG supply crisis began, small restaurants and roadside eateries have been among the worst affected. Larger food chains with multiple outlets across the State were able to manage the situation better owing to their scale and supply networks. However, these major brands were also the first to increase food prices and reduce portion sizes. Smaller eateries have followed suit only in the past two weeks,” said a food consultant.

In Triplicane, a Chennai neighbourhood with a large number of men’s mansions housing job seekers and migrant workers, residents say their daily food expenses have increased by ₹50 to ₹125 in recent weeks. Many who moved to the city in search of employment say affordable food was one of the reasons they chose to stay in mansions despite their cramped living conditions. “We stay in mansions because it helps us cut down on room rent and manage our expenses better. But eating has now become more expensive than lodging,” said Rajavel, a resident of a mansion in the locality. Men living in mansions across the State face the same crisis.

Young professionals and Gen Z employees working in the IT sector say rising travel and food expenses are beginning to strain their monthly budgets. Archana, a software professional employed at a small IT firm along Chennai’s Old Mahabalipuram Road (OMR), said recent workplace changes added to her financial burden. “After Prime Minister Narendra Modi’s announcement encouraging work-from-home, our company reduced its employee transport services and asked the staff members to arrange commute on their own. Now, I must bear my daily travel expenses too,” she said. According to industry experts, the State has over 10 lakh people working in the IT sector, including many from other States.

Silent surge

A cooking oil industry source said that in the past few days, the prices of cooking oils, including palm and sunflower oils, had gone up by ₹15 a litre. Amid rumours that excise duty on cooking oil imports would be increased, there has been panic buying and hoarding. “Since countries that mainly supply cooking oil to India, including Malaysia and Indonesia, have diverted their excess stocks to make biodiesel, the nation’s supplies too are likely to be hit. They too want to conserve foreign exchange by not buying crude oil. If crude prices go down, the price of palm oil too will go down,” he said. Besides homes, palm oil is mainly used in the hotel industry for cooking and making snacks.

Salem Shevapet Maligai and Shop Varthaga Nala Sangam president S.C. Natarajan said that owing to favourable seasonal rainfall, the prices of most grocery items remained stable, with only a few commodities witnessing an increase of ₹5 to ₹10 a kg. Compared with March this year, the price of ‘toor dal’ has increased from ₹125 to ₹130 a kg, while Bengal gram has risen from ₹85 to ₹90 a kg. The price of roasted gram has also gone up from ₹90 to ₹100 per kg, he added.

Firewood cost rising too

Hotels that shifted from LPG to firewood are now grappling with rising firewood cost too. With demand for ‘seemai karuvelam’ (Prosopis juliflora) increasing sharply, the prices have risen from ₹6,000 to ₹13,000 per tonne, Madurai-based wholesale trader A. Karthikeyan said, adding that his customer base had grown from 50 to 70 since the gas shortage began.

Peanut hulls, another alternative biofuel widely used by sweet shops in the region, have also become costlier following the LPG price hike. Known for generating the intense heat required for continuous boiling of sugar syrup, the fuel is commonly used in sweet-making units. M. Kannagaraj, a sweet shop owner in Madurai, said the price of a 30-kg gunny bag of peanut hulls had risen from ₹240 to ₹280. He feared the price might increase further if LPG rates continued to rise.

Rising prices of essential commodities, LPG, and fuel have been affecting the operations of parotta shops in Tiruchi’s Edamalaipatti Pudur area. Shops that once started preparing parottas from early afternoon have begun staggering cooking schedules to optimise the use of gas cylinders and firewood stoves. Residents say the impact is already visible in food prices. “Not long ago, a parotta cost ₹10. It rose to ₹15 earlier this year and now sells for ₹25. Today, buying six parottas costs more than the gravy that accompanies them,” said a resident of Edamalaipatti Pudur.

Cloud kitchens, which rely heavily on app-based food orders, are also facing mounting pressure amid the rising operational cost and shrinking profit margins. Tiruchi alone has nearly 250 cloud kitchens, and several of them are reportedly on the verge of shutting down, according to S. Sundaresan, district secretary of the Tiruchi Hotel Association. “Subscription-based meal services have been among the worst hit by the price rise because we cannot increase rates after customers have already paid their monthly fee. At best, we may have to reduce the number of deliveries or impose a surcharge on future subscriptions,” said S. Siva of Mukkani Tiruchi, a fresh-cut fruits and salads subscription service. Several women, particularly those running cloud kitchens and subscription-based food services across the State, fear that the continuing rise in the fuel and raw material costs could severely affect their already modest monthly savings and threaten the sustainability of their businesses.

Delivery workers in trouble

Food and e-commerce delivery workers say the steady rise in fuel prices is pushing them deeper into financial stress, even as their earnings remain stagnant. Many complain that while the cost of petrol continues to rise, companies have done little to offset the burden on gig workers. “There are far more delivery workers now than there were two years ago, but the number of bookings we receive has reduced sharply. Our incomes have remained the same while fuel expenses keep increasing,” said a delivery executive, expressing concern over the growing struggle to sustain daily expenses.

Many consumers say the new government must urgently intervene to regulate soaring food prices, accusing sections of the hotel industry of increasing rates at the slightest excuse while rarely reducing them when commodity prices fall. “Hotel associations are always quick to cite rising costs and hike prices, but when market prices come down, customers never see any reduction on their bills. The common man is being squeezed from all sides. Someone must step in and control these arbitrary price hikes,” they said.

Supplies stretched

An expert on LPG said that only 60%-70% of the requirement was at present bottled at the plants owing to the reduction in supplies. “There were times when bottling plants worked to fill up 120% of bookings and distributors still had backlogs. At present, the oil marketing companies (OMCs) seem to be stretching whatever supplies of LPG they have. In urban areas, though booking is allowed after 25 days as opposed to 45 days in rural areas, it takes nearly 40 days for the cylinder to reach the customer. It is the same with rural consumers.”

Distributors say they get only one load of bottles where two are needed. OMCs have been saying they have enough stock and there is no need to panic, but they are not permitting new 14.2-kg domestic connections because diversions happen rampantly. “This is mostly done by the delivery boys with the connivance of a few distributors,” said an oil industry source.

(With inputs from Sabari M. in Salem and Namakkal; Nahla Nainar and Ancy Donal Madonna in Tiruchi; P.V. Srividya in Krishnagiri and Hosur; S.P. Saravanan in Erode; Beulah Rose in Madurai; and Deepa Ramakrishnan in Chennai.)

U.S. President Donald Trump and Chinese President Xi Jinping, take a walk through Zhongnanhai Garden, in Beijing on Friday.
| Photo Credit: ANI

Rising geopolitical instability in West Asia is forcing a reassessment of how India’s macroeconomic strength is measured.

As of March 2026, this instability has translated into active macroeconomic stress. The rupee has depreciated to a record low of ₹95 per dollar, the Indian basket of crude oil hit $156.29 per barrel, and the Reserve Bank of India has deployed billions of dollars of foreign exchange reserves to contain volatility. In such conditions, strong quarterly GDP prints capture domestic activity but often overlook vulnerabilities linked to energy imports, shipping routes and fiscal buffers.

Against this backdrop, India enters the post-Budget season with a striking macroeconomic contradiction. Headline indicators remain robust: the State Bank of India expects Q3 FY26 GDP growth of about 8.1 percent, public capital expenditure is near 4 percent of GDP, and fiscal consolidation toward a 4.3 percent deficit by FY27 remains intact. At the same time, external buffers are weakening. Foreign exchange reserves have declined from recent highs to about $709.76 billion, while foreign portfolio outflows of over $8 billion following the onset of the conflict have intensified currency pressures.

Yet income dynamics are weaker. Real wages remain subdued, household liabilities have risen to roughly 41 percent of GDP, and private investment continues to lag the state’s capex-led expansion.

This divergence reflects a deeper shift in India’s fiscal architecture: revenue buoyancy is increasingly driven by transaction-linked taxation while expenditure tilts toward capital formation. In a stable global environment this model can sustain growth, but when energy markets become volatile, its durability depends on whether fiscal revenues, consumption and investment can withstand external commodity shocks.

Shifts in revenue structure

India’s revenue structure has been shifting in ways that matter more in a volatile global environment. Revenue receipts have risen from 8.5 percent of GDP in FY16–20 to about 9.1 percent in FY22–FY25 (PA), but the increase reflects recomposition rather than a broadening of income taxation. The Union Budget 2026–27 estimates gross tax revenue at ₹44.04 lakh crore, yet much of the buoyancy now comes from transaction-linked channels. GST collections reached ₹22.8 lakh crore in FY25, while levies on financial and cross-border transactions have also expanded.

Direct taxes typically expand when more workers move into stable paid employment. As a result, revenue growth increasingly depends on the volume of economic transactions rather than income deepening.

External shocks particularly energy price spikes that raise transport costs and compress household spending can quickly slow transactions. In such conditions, a fiscal model reliant on activity-linked taxation becomes more sensitive to geopolitical disruptions that ripple through consumption, trade and financial markets.

This vulnerability has been evident during past shocks. During the pandemic, widening gaps between projected and actual GST revenues forced the Union government to borrow over ₹2.69 lakh crore between 2020 and 2022 to compensate states for revenue shortfalls.

The effects of oil price surge

India’s fiscal system remains structurally exposed to oil price volatility. The country imports around 85–87 percent of its crude oil, making it directly vulnerable to external energy shocks a direct macroeconomic transmission channel.

Empirical estimates suggest that a $10 per barrel rise in crude prices can increase Consumer Price Index inflation by roughly 0.2 percentage points, widen the current account deficit by about $9–10 billion (around 0.4 percent of GDP) and reduce GDP growth by nearly 0.5 percentage points under partial pass-through conditions. Oil shocks also propagate through the fiscal system: higher energy costs raise fertiliser and LPG subsidy requirements, increase transport and logistics costs, and elevate inflation-linked expenditure.

Recent policy responses illustrate this transmission. Following the Russian invasion of Ukraine, the Indian crude basket surged from roughly $59 per barrel in 2019 to over $120 in mid-2022.

To contain inflation, the government reduced central excise duties on petrol and diesel by a cumulative ₹13 and ₹16 per litre between November 2021 and May 2022, resulting in an estimated ₹2.2 lakh crore revenue loss. At the same time, energy-linked subsidies expanded, with fertiliser support rising sharply and total energy subsidies touching nearly ₹3.2 lakh crore.

Amid the ongoing conflict in West Asia, estimates by ICRA suggest that if oil prices average around $100 per barrel, India’s current account deficit could widen from about 0.7-0.8 percent to nearly 1 percent of GDP, while government expenditure could rise by as much as ₹3.6 trillion due to higher subsidy and compensation requirements. This underscores how energy shocks translate simultaneously into external imbalances and fiscal stress.

When oil prices spike, governments typically absorb part of the shock through tax reductions and subsidy expansion, compressing fiscal space. In a system increasingly reliant on transaction-linked taxes, such shocks can simultaneously weaken consumption, reduce GST buoyancy and expand expenditure pressures, creating a direct fiscal squeeze.

Impact on households

Household balance sheets reveal a key channel through which energy volatility transmits into the domestic economy.

Private consumption accounts for roughly 61.4 percent of India’s GDP, yet household liabilities have risen sharply from about 36–37 percent of GDP in 2022 to over 41 percent by 2025, increasing sensitivity to inflationary shocks and suggesting that consumption is being sustained less by income growth and more through credit expansion.

Net financial savings have also become more volatile, falling to around 3–4 percent of GDP in recent quarters before recovering to about 7.6 percent, indicating a weakening of financial buffers.

The exposure is being amplified by the current shock, as disruptions to LPG supply chains — over 60 percent of which depend on imports — have translated into longer refill cycles and local shortages, raising household energy costs even as leverage remains elevated.

At the same time, India’s expenditure strategy has pivoted toward infrastructure-led growth. The Union Budget 2026–27 places effective capital expenditure at ₹17.15 lakh crore.

While such front-loaded investment strengthens long-term productive capacity, it compresses fiscal space for welfare stabilisers. Allocations for the Mahatma Gandhi National Rural Employment Guarantee Act fell to ₹60,000 crore in 2023–24, 33 percent below the previous year’s revised estimate; by December 2022, States had already spent 117 percent of available funds, with ₹8,449 crore in pending liabilities.

In a low-wage environment, imported energy inflation compresses real incomes while debt servicing obligations remain fixed. Rising household leverage therefore becomes a macroeconomic vulnerability, especially when fiscal policy prioritises capital formation over income support and external shocks weaken consumption. Beyond households, geopolitical uncertainty is also shaping corporate investment and credit allocation.

Implications for industrial sector

India’s industrial upswing is increasingly concentrated in capital-intensive sectors aligned with public investment. Industrial output rose 7.8 percent in December 2025, with manufacturing expanding 8.1 percent year-on-year and 4.8 percent over April–December. High- and medium-technology industries now account for about 46 percent of manufacturing value added, according to the Economic Survey 2025-26.

By contrast, labour-intensive industries remain weak.

Private investment remains cautious despite rising project announcements.

CMIE (Centre for Monitoring Indian Economy) data shows private firms account for nearly 80 percent of new project announcements, yet only about 9 percent reached completion in 2022–23, suggesting a recovery that expands production capacity more than wage-linked income. Recent financial stability assessments show bank balance sheets are considerably stronger than a decade ago.

In a volatile global environment, this financial strength has translated into greater risk selectivity rather than broader credit expansion. 

The recent LPG crisis induced shortages of commercial cylinders have forced the closure of restaurants, cloud kitchens and small food businesses, with gig worker unions reporting a 50–60 percent decline in food delivery orders. Such shocks disproportionately affect labour-intensive and informal sectors, where incomes are directly tied to daily demand and lack institutional protection, even as capital-intensive sectors remain relatively insulated within the financial system.

As external pressures intensify, they raise a broader question of fiscal optionality: the state’s ability to absorb shocks without abandoning consolidation targets. With fiscal space tied to capital expenditure and revenues dependent on economic transactions, geopolitical disruptions can quickly narrow the room for counter-cyclical intervention. In such a context, India must rebalance toward income-led demand, more resilient revenue bases and greater energy diversification, or risk turning external shocks into a recurring source of fiscal stress.

(Deepanshu Mohan is professor and dean, O.P. Jindal Global University. He is a visiting professor at LSE and a visiting academic fellow at University of Oxford. Saksham Raj and Aditi Lazarus contributed to this column.)

By cutting off a nation’s access to resources, finance, and trade, sanctions aim to put economic pressure on the government or leaders to alter their policies.
| Photo Credit: Getty Images/iStockphoto

Beijing:

China is expanding its consumer trade-in scheme to revive demand in the sluggish household sector. The move includes adding more home appliances to the list of products eligible for trade-in and offering subsidies for digital goods. Microwave ovens, water purifiers, dish-washing machines, and rice cookers are among the new additions to the scheme.

Consumers who trade in old goods will receive subsidies of 15-20%. Cellphones, tablet computers, smart watches, and bracelets under 6,000 yuan will also be eligible for a 15% subsidy. The government has allocated 81 billion yuan ($11 billion) for the program in 2025.

The trade-in scheme was initially launched last March, with a budget of 150 billion yuan funded through special government bonds. The program was used by 36 million consumers to buy 240 billion yuan worth of home appliances, driving 920 billion yuan of car sales.

China’s top economic planning body has said the schemes have already produced “visible effects” in boosting consumer spending. However, some economists have questioned whether the schemes will be enough to significantly increase consumer demand.

“The downside of such a policy is you are just pulling forward future demand,” Hui Shan, chief China economist at Goldman Sachs said. “If I’m going to replace my air conditioner once every 10 years, [you’re] pulling the next few years of demand into now.”

This trade-in scheme is also reminiscent of former US president Barack Obama’s “cash for clunkers” initiative, through which consumers could trade in old cars for new ones, post the 2008 global financial crisis.

However, Frederic Neumann, chief Asia economist at HSBC, said that such trade-in programmes are helpful only for a short-term goal and said that China would need more policies that would aid consumption for a sustainable change.

The expansion of the trade-in scheme comes as China faces challenges such as weak consumer demand and a deepening property crisis. In December, a key meeting of China’s leaders stressed the need for “vigorous” efforts to boost consumer spending. China is due to announce its 2024 economic growth figures next week, which Beijing expects to be around 5%.
 

Indian economy: what to expect in 2025?

| Video Credit:
The Hindu

At the start of 2024, there was a lot of excitement about the Indian economy – the country was one of the fastest growing economies in the world and there was anticipation that India will become a $4 trillion economy in 2024-25 and become the world’s third-largest economy by 2027. The consensus was that the Indian economy was expected to grow at an impressive 7%.

However, the latest data from the National Statistics Office (NSO) showed the real GDP growth was at 5.4% in the second quarter of this financial year, the lowest in seven quarters. The Gross Value Added growth slowed to 5.8%.

This growth is underwhelming, given that Reserve Bank of India recently projected that the GDP would grow by 7%. In its meet in December, the MPC has now downgraded the growth forecast for 2024-25 to 6.6% from 7.2%.

Is the Indian economy slowing down or is the 5.4% growth pace just “a one-off number”, as Chief Economic Adviser V. Anantha Nageswaran put it? We spoke to Rajani Sinha Chief Economist at CareEdge to find out what’s in store for 2025.

Video: Thamodharan B.

When Julius Caesar’s Senate fixed January 1 as the ‘first day of the year’, the idea wasn’t only to ‘start afresh’. It was also when those in civil office were to set in motion their responsibilities. In that tradition, coming down from 45 BC, let the existing coalition government headed by Narendra Modi set out to focus and do a lot better with this list: Top 25 Must Get Done In 2025.

1. Control inflation: Retail inflation reached a 14-month high of 6.21% and food inflation reached a 15-month high of 10.87% in October 2024. In 2023, savings by households dipped to a 50-year low.

2. Make the GDP grow: The Reserve Bank of India reduced GDP growth estimates from 7.2% to 6.6% in December 2024. The repo rate was not cut for eleven consecutive terms.

3. Attract foreign investment: 13 thousand crore (1.6 billion USD) worth of foreign direct investment has decreased between 2022-23 and 2023-24.

4. Make the rupee strong: In December 2024, the rupee stayed weak for the third straight session and settled at an all-time low of 85.27 against the US dollar.

5. Generate employment: Youth unemployment rate has been at 10% for the last two years. As per the Economic Survey, half of all individuals are not ready to be employed after graduating from college.

6. Favour the common man: In the last four years, Rs 5.65 lakh crore has been written off for the industrial sector. Agriculture, the largest employer in the country, received the least attention in terms of loan write-offs among all sectors from Scheduled Commercial Banks.

7. Provide food for all: Annually, 17 lakh Indians die from diseases related to insufficient food intake.

8. Ensure equal wages for all: Annual growth rate of real wages over the last decade has been close to zero at the all-India level. Rural real wages for the last five years have declined at 0.4% and agricultural wages have become stagnant at 0.2%. Four out of five people earn less than Rs 515 as of 2021.

9. Ensure dignity of life for farmers: As per the NCRB, 30 farmers commit suicide every day. Since February 2024, 22 farmers have lost their lives and over 160 have been injured while protesting for a legal guarantee for MSP.

10. Enable safety for women: Section 63 of the Bharatiya Nyaya Sanhita deals with the offence of rape but provides an exception for marital rape, stating that “sexual intercourse or sexual acts by a man with his own wife, the wife not being under eighteen years of age, is not rape”.

11. Ensure dignity for the marginalised: Between 2018 and 2020, 443 people died cleaning sewers and septic tanks. Manual scavenging was banned in 2013.

12. Protect the press: Between 2014 and 2019, there were 200 serious attacks on journalists, along with arrests and interrogations. At least 194 journalists were targeted by government agencies, non-state political actors, criminals, and armed opposition groups in 2022 alone.

13. Ensure equitable representation: The representation of women in the 18th Lok Sabha is merely 13.6%. This is even less than the 17th Lok Sabha, which had 14.4% women. Only two out of 24 Parliamentary Standing Committees are chaired by women.

14. Allow legislative scrutiny: Since 2019, over 100 bills have been passed in less than two hours. In the 17th Lok Sabha, nine out of 10 bills introduced in Parliament have been marked by zero or incomplete consultations.

15. Select the Deputy Speaker of Lok Sabha: The 17th Lok Sabha did not have a Deputy Speaker for its entire five-year term. The office of the Deputy Speaker continues to remain vacant even in the 18th Lok Sabha.

16. Allow criticism: The number of opposition MPs who have been suspended in the last five years has increased 13-fold. As many as 95% cases by the Enforcement Directorate in the last ten years have been filed against those from the Opposition.

17. Respect institutions: The National Commission for Backward Classes, the National Commission for Scheduled Castes, and the National Commission for Protection of Child Rights do not have a Vice-Chairperson.

18. Support Scheduled Tribes, Scheduled Castes & Other Backward Classes: As of March 2024, one out of 10 Kasturba Gandhi Balika Vidyalayas (KGBV) were not functional. Two out of five Eklavya schools were not functional as of July 2024.

19. Complete timelines: The 2021 Census has still not been conducted. This makes it the first Census to be delayed between 1887 and 2011.

20. Utilise funds better: As much as 80% of the Beti Bachao Beti Padhao’s total fund was spent on media advocacy, not for interventions on health or education.

21. Release dues owed to states: The government owes Rs 1,500 Crore under MGNREGS and Awas Yojana to West Bengal. The non-payment of the funds has directly affected the livelihood of 59 lakh MGNREGS workers.

22. Care about Manipur: The violence in Manipur has continued for more than a year, causing the displacement of 67,000 people, of which 14,000 are school-going students. The Prime Minister is yet to visit the state.

23. Safeguard minorities and their welfare: The NCRB recorded 378 instances of communal violence in 2021 and 272 such instances in 2022. In 2023, India witnessed 668 documented hate speech incidents against one community alone. One hundred and twenty-eight properties were demolished between April and June 2022, following communal violence and protests.

24. Build secure public infrastructure: There were 244 train accidents between 2017 and 2022. As many as 135 people died when a suspension bridge collapsed in Morbi. Fourty-one workers were trapped for 17 days after the Uttarkashi Tunnel caved in.

25. Enable a safer internet: Frauds relating to “digital arrests” in the first nine months of 2024 amounted to losses worth Rs 1616 crore. The Digital Data Protection Rules have not been notified despite the Act being passed over a year ago.

(Research credit: Varnika Mishra)

(Derek O’Brien, MP, leads the Trinamool Congress in the Rajya Sabha)

Disclaimer: These are the personal opinions of the author

Taxed at a significantly lower rate following the introduction of the concessional tax regime in 2019, India’s largest corporates may have saved over ₹3 lakh crore in tax payments since then. This is in addition to over ₹8 lakh crore in revenue foregone through various deductions granted to companies in the decade since 2012-13 (FY13).

Experts note that while the tax cuts point towards the need to rationalise tax incentives, a decline in corporate tax-gross domestic product (GDP) ratio could limit the government’s ability to finance additional development expenditure.

Until 2019, a corporate tax rate of 25% was levied on domestic companies with an annual turnover of up to ₹400 crore. It was 30% for the rest. The new tax regime slashed the rate to 22% as long as the companies forgo certain deductions under the Income Tax (IT) Act. In addition to this, tax rates for new manufacturing companies were lower, provided they fulfilled certain conditions.

Suranjali Tandon, Associate Professor at NIPFP, explains that the new tax regime is indicative of a preference for a “simpler tax system with lower rates” as corporate tax rates have undergone changes at different points before to align with the country’s economic priorities.

“However, there is no consensus on the optimal corporate tax rates as this may vary as per economic circumstances and context,” she says.

R. Nagaraj, Distinguished Senior Fellow at IIT Bombay, argues that a reduction in corporate tax rates mainly serves the “class interests” of the “business community” — evident in the simultaneous increase in luxury consumption. “This is the standard Laffer curve argument which was popular during the Reagan administration in America. But we do not have any evidence of this working anywhere in the world, especially not in India.” To get a sense of the amount saved in taxes as a result of this incentive, data of India’s largest companies, those on the BSE 500 index, were considered, which were sourced from the Capitaline database.

So, until FY19, The Hindu’s analysis shows, the effective tax rate for these companies, which is the average rate at which the profits (before taxes) of corporations are taxed, was 30% or higher. The ratio declined in the subsequent years, and touched a low of 21.2% in FY24. Moreover, the top 10% of the BSE 500 companies continued to enjoy lower effective tax rates compared to the overall average for all companies, even as the gap has considerably narrowed in recent years.

Table 1 shows the effective tax rate (in %)

Charts appear incomplete? Click to remove AMP mode.

“As large companies opt for the new regime, the lower effective tax rate is expected,” says Prof. Tandon.

In absolute terms, this could have translated into a tax saving of roughly ₹3.14 lakh crore for these companies since FY20.

The figures were estimated by calculating the compound annual growth rate (CAGR) in taxes paid by companies in the five years ending at FY19 (which was 11.5%) and also assuming a similar rate of growth for the subsequent years until FY24 had the tax cuts not been introduced, provided all other factors remained constant (Table 2).

Table 2 shows the tax data for BSE500 companies for which figures were available^

Company profits grew at a much slower pace at 10.4% in the five years ending at FY19. In the five years since FY20, however, company profits have grown at a rate of 32.5% while corporate taxes paid by these companies have done so only by 18.6%.

Apart from tax rates and profits, the level of economic activity also influences corporate tax collections, says Zico Dasgupta, Assistant Professor of Economics at Azim Premji University.

While the intent behind such changes was to encourage private investment, create jobs and “establish a globally competitive business environment for certain domestic companies”, Prof. Dasgupta says there is little evidence to suggest that tax incentives make businesses more competitive.

But since tax concession also means forgone expenditures by the government, it seems to me that the more important policy question pertains to a cost-benefit analysis of providing greater tax concession.”

He says, “The corporate tax concessions announced in the pre-COVID-19 period do not seem to be based on such considerations.”

Prof. Tandon notes that since the incentives coincided with the pandemic, the evidence to suggest increased private sector investments due to rate cuts is “mixed”. “Nevertheless, the profitability of companies has allowed them to create reserves and to invest in current assets. In part, the anticipated demand can influence the decision to make capital investments.”

Companies also avail tax concessions in the form of deductions under various sections of the IT Act. For instance, tax incentives are granted on donations made to charitable trusts, contributions to political parties, expenditure on scientific research or on profits of undertakings set-up in north-eastern States among others. The government calculates the revenue impact of such concessions in the Budget document each year and this is done for a larger database of over 10 lakh companies.

Revenue forgone due to such deductions amounts to ₹8.22 lakh crore in the decade ended FY22 (latest data). The data show an underestimation of the revenue impact in six of the ten years considered (Table 3).

Table 3 shows the revenue impact of major tax incentives for corporate tax payers (in Rs. crore). It also shows the projected revenue impact (in Rs. crore). The data show an underestimation of the revenue impact in six of the ten years considered.

With inputs from Sindhu Hariharan

Source: Budget documents, Capitaline

samreen.wani@thehindu.co.in

Donald Trump’s victory in the 2024 election – and his threat to impose tariffs on all imports to the United States – highlights an important problem for the global economy.

The US is a technological powerhouse, spending more than any other country on research and development and winning more Nobel prizes in the last five years than every other country combined. Its inventions and economic successes are the envy of the globe. But the rest of the world needs to do everything in its power to avoid being too dependent on it.

And this situation would not have been much different had Harris won.

The “America first” approach of Donald Trump has actually been a bipartisan policy. At least since previous president Barack Obama’s policy of energy independence, the US has been on a mostly inward-looking quest of maintaining technological supremacy while ending the offshoring of industrial jobs.

One of the major choices Trump made in his first term was to accept higher prices for US consumers in order to protect national producers by slapping high tariffs on almost every trading partner.

For instance, Trump’s 2018 tariffs on washing machines from all over the world mean US consumers have been paying 12% more for these products.

President Joe Biden – in certainly a more polite way – then increased some of the Trump tariffs: up to 100% on electric vehicles, 50% on solar cells and 25% on batteries from China.

At a time of climate emergency, this was a clear choice to slow down the energy transition in order to protect US manufacturing.

While Biden signed a truce with Europe on tariffs, it started a perhaps even more damaging battle by launching a subsidy race.

The US Inflation Reduction Act for instance contains US$369 billion (£286 billion) of subsidies in areas such as electric vehicles or renewable energy. And the Chips Act committed US$52 billion to subsidise the production of semiconductors and computer chips.

China, Europe and the rest of the world

This US industrial policy might have been inward-looking, but it has clear consequences for the rest of the world. China, after decades of mostly export-based growth, must now deal with massive problems of industrial overcapacity.

The country is now trying to encourage more domestic consumption and to diversify its trading partners.

Europe, despite a very tight budget constraint, spends a lot of money in the subsidy race. Germany, a country facing sluggish growth and big doubts on its industrial model, is committed to matching US subsidies, offering for instance €900 million (£750 million) to Swedish battery makers Northvolt to continue producing in the country.

All those subsidies are hurting the world economy and could have easily financed urgent needs such as the electrification of the entire African continent with solar panels and batteries. Meanwhile, China has replaced the US and Europe as the largest investor in Africa, following its own interest for natural resources.

The incoming Trump mandate might be a chance to fix ideas.

One might, for instance, argue that the full-scale invasion of Ukraine, and the thousands of deaths and the energy crisis that followed, could have been avoided had the Biden administration been clearer to Russian president Vladimir Putin about the consequences of an invasion, and provided modern weapons to Kyiv before the war.

But the blame is mostly on Europe. Credit where it’s due, the strategic problem of becoming too dependent on Russian gas is something Trump had clearly warned Germany about during his first mandate.

There is a clear path forward: Europe could help China fix its overcapacity problems by negotiating an end to its own tariff war on Chinese technology such as solar panels and electric cars.

In exchange, Europe would regain some sovereignty by producing more of its own clean energy instead of importing record amounts of liquid gas from the US. It could also learn a few things from producing with Chinese companies, and China could use its immense leverage on Russia to end the invasion of Ukraine.

The European Union could also work harder on what it does best: signing trade deals, and using them as a way to reduce carbon emissions around the world.

This is not only about Europe and China. After decades of continuous improvement on all major dimensions of human life, the world is moving backwards.

The number of people facing hunger is increasing, taking us back to the levels of 2008-9. War is raging in Gaza, Sudan, Myanmar, Syria, and now Lebanon. The world had not seen as many civilian casualties since 2010.

For better or worse, it is unlikely that a Trump administration will reverse the path of lower US interventionism. It is also unlikely to lead any major initiative on peace, climate change or on the liberalisation of trade.

The world is alone, and America will not come to save it.

We do not know what will happen to the US. Maybe the return of Trump will mostly be a continuation of the last ten years. Maybe prohibitive tariffs or destroying the institutions that made the US such an economic powerhouse will make the US economy less relevant. But this is something Americans have chosen, and something the rest of the world simply has to live with.

In the meantime, the only thing the world can do is learn how to better work together, without becoming too dependent on each other.

(Author: Renaud Foucart, Senior Lecturer in Economics, Lancaster University Management School, Lancaster University)

(Disclosure Statement: Renaud Foucart does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment)

This article is republished from The Conversation under a Creative Commons license. Read the original article.
 

(Except for the headline, this story has not been edited by NDTV staff and is published from a syndicated feed.)

(The co-author, Bibek Debroy, passed away on November 1 at the age of 69. This is his last column for NDTV, which he submitted on October 21. His other columns can be found here)

The Global Multidimensional Poverty Index (MPI) is a comprehensive tool developed by the Oxford Poverty and Human Development Initiative (OPHI) and the UNDP’s Human Development Report Office. It was first introduced in 2010 to measure acute multidimensional poverty across over 100 developing countries. The MPI goes beyond income-based poverty measures by assessing deprivation across three key dimensions: health, education, and standard of living. These dimensions are represented through ten specific indicators, such as stunting, underweight, child mortality, years of schooling, and access to basic amenities like clean water and electricity. Each indicator is assigned a weight, with the health and education dimensions receiving 1/6 weight each, and the standard of living indicators collectively weighted at 1/18 each. Individuals are considered multidimensionally poor if they are deprived in at least one-third of the weighted indicators, emphasising the interconnectedness of deprivations.

How MPI Is Calculated

Methodologically, the MPI computation starts by constructing a deprivation profile for each household based on survey data such as Multiple Indicator Cluster Surveys and Demographic and Health Surveys. These profiles track deprivations for every individual in the household. The MPI is calculated as the product of the incidence (H), or the proportion of people who are multidimensionally poor, and the intensity (A), which measures the average share of deprivations experienced by the poor. This approach enables disaggregation of poverty data by region, age group, and other socio-demographic factors, allowing for more precise targeting of interventions.

The Multidimensional Poverty Index (MPI), which considers various non-monetary deprivations across health, education, and living standards, reveals significant regional disparities. Sub-Saharan Africa and South Asia remain disproportionately affected, housing 83% of the world’s poor. In countries with low Human Development Index (HDI) scores, such as Niger, Chad, and the Democratic Republic of the Congo, high poverty rates persist, with over half of the population living in multidimensional poverty. While global efforts have reduced poverty, particularly in countries like Nepal and Sierra Leone, challenges related to governance, conflict, and environmental shocks continue to hinder progress in many regions.

How Some Regions Have Progressed

Despite these challenges, 76 countries have witnessed statistically significant reductions in MPI values. Sub-Saharan Africa, despite housing the largest concentration of the poor, has seen notable improvements in countries such as Ethiopia and Liberia. These reductions are often attributed to strategic interventions in education, healthcare, and infrastructure, which address the core dimensions of multidimensional poverty. The COVID-19 pandemic temporarily reversed gains in some areas, but post-pandemic data shows a slow resumption of progress in most regions. This highlights the need for sustained, evidence-based policy interventions, particularly in conflict-prone regions where poverty alleviation efforts have been stymied.

India has been a standout case in global poverty reduction, particularly in the last decade. With 234 million people living in multidimensional poverty in 2024, India still accounts for the largest number of poor individuals globally. However, the country’s efforts to address poverty through large-scale programmes have yielded impressive results. Since 2005-06, India has significantly reduced the MPI, with a 16.4 percentage point reduction in poverty incidence between 2015-16 and 2019-20 alone. Programmes such as the Pradhan Mantri Awas Yojana (housing), Swachh Bharat Abhiyan (sanitation), and Ayushman Bharat (healthcare) have targeted the core deprivations affecting millions, particularly in rural areas where poverty is most prevalent. Substantial improvements in key indicators such as nutrition, school attendance, and access to electricity have driven India’s multidimensional poverty reduction.

MPI Is Inadequate

But is MPI a real measure of poverty? The answer is no. It is more of a development indicator rather than a true measure of poverty. As discussed, MDPI is grounded in three key dimensions: health, education, and living standards. Health indicators—such as nutrition, child and adolescent mortality, and maternal health—along with education metrics like years of schooling and school attendance are undeniably crucial for shaping an individual’s future prospects and determining long-term poverty outcomes. These dimensions, however, are more forward-looking in nature and capture the potential for future poverty rather than the immediate deprivation that living standards reflect.

Living standards encompass access to cooking fuel, sanitation, drinking water, electricity, housing, assets, and financial inclusion (e.g., bank accounts), providing a more immediate and tangible picture of poverty. While health and education are critical drivers of development, conflating them with living standards under the umbrella of “poverty” risks diluting the focus of poverty measurement.

Yet, this elasticity is necessary because poverty is not just about material deprivation; it also encompasses missed opportunities and structural disadvantages. As Sen (1999) and Nussbaum (2000) highlight in their capabilities approach, addressing poverty requires more than just economic relief—it demands empowering individuals to lead lives they value, which involves access to education and health. In this sense, the broad scope of MDPI reflects a deeper understanding of human development and the interrelatedness of various deprivations.

Why The Tendulkar Line Is Outdated Now

However, we need an updated headcount ratio to accurately measure poverty and assess the effectiveness of its socio-economic policies. India also urgently needs a new poverty line due to the outdated nature of the existing Tendulkar line, last updated in 2011-12. As economies evolve, so do the standards of what constitutes a “bare minimum” for subsistence, yet India continues to rely on this decade-old benchmark. The debate over the adequacy of the ₹32 per capita per day figure, once a lightning rod for controversy, highlights the need for a more accurate measure that reflects current economic realities. While the Rangarajan Committee proposed a revised poverty line in 2014, it was never officially adopted, leaving India reliant on an obsolete metric.

With the release of new data from the Household Consumption Expenditure Survey (HCES), there is an opportunity to recalibrate India’s poverty line to reflect contemporary socio-economic conditions. The HCES provides detailed insights into household consumption patterns, and applying this data to a revised poverty line could give a more accurate measure of deprivation in the country.  

(Bibek Debroy was Chairman, Economic Advisory Council to the Prime Minister, and Aditya Sinha is OSD, Research, Economic Advisory Council to the Prime Minister)

Disclaimer: These are the personal opinions of the authors