An impossible trilemma.

All is revealed. Budget 2025 on 1 February promises to increase the threshold for income tax to Rs 1.2 million per year "to boost middle class household savings and consumption." It also promises funds for farmers, gig workers, "Atal Tinkering Labs in government schools," "Centre for Excellence for Artificial Intelligence for Education" and for "Nuclear Energy Mission for R&D of Small Modular Reactors." pib. gov.in. Even while promising to lower income tax burden for the middle class the government cannot restrain itself from tax terrorism which is driving millionaires away from India, according to Mohandas Pai. Mint. "As the government tightens regulatory oversight and intensifies efforts against tax evasion, individuals earning overseas will encounter heightened scrutiny and expanded reporting obligations," which will "add new financial complexities for those managing tax responsibilities in both their host country and India." ET. This is the thanks they get for sending precious foreign exchange to India which helps to control our current account deficit (HT) because we had an overall trade deficit of $78.1 billion in FY 2023-24 (pib.gov.in). "India was the topmost recipient of remittances in 2024 with an estimated inflow of $129 billion." BS. Thus, money sent by overseas Indians more than compensates for our trade deficit. Beneficiaries of the income tax cuts will "save some of the extra disposable income and spend the rest - buying TV/cars/houses, eating out and so on." When people eat out, the owner and workers of the restaurant earn money, which they in turn will spend in buying things, wrote Somnath Mukherjee. This is the 'multiplier effect' in which money spent in one place is received as income elsewhere, and some of that income gets spent and is received as income elsewhere, and this carries on. stlouisfed.com. However, the Rs 1 trillion loss of revenue due to the income tax relief will most likely be funded by reducing expenditure. "Indeed, for FY 2026, growth in capex (capital expenditure) Budget, at 10%, is the lowest in last 5 years." The Rs 1.2 million threshold for income tax does not include capital gains. Hence, an individual earning a salary of Rs 800,000 and Rs 400,000 in capital gains for a total of Rs 1.2 million will not have to pay tax only on the Rs 800,000. ET. Last year's Budget removed indexation for inflation from short-term and long-term capital gains on the sale of shares (Bajaj) and also on the sale of property acquired after 23 July 2024. BS. Will the increase in consumption helped by increased disposable income result in higher private investment, raising employment levels? "With the share of manufacturing in the economy at its lowest level since 1960, new factory investments hold the key to boosting employment." "The showstopper, especially for smaller firms is India's great unease of doing business," wrote Andy Mukherjee. What India needs is deregulation. But the maze of regulations gives the power for extraction to bureaucrats. "At every step of dealing with the petty bureaucracy, some money needs to change hands to speed up the process." "All told 19% of a $2.3 million factory in India is an extra burden of governance - or lack of it - that doesn't exist in Thailand," wrote Mukherjee. However, all the excitement and congratulations will be in vain if prices continue to rise without control (RI). Most of the relief in income tax will be spent on buying essentials, some on savings and the rest probably on buying gold. "India imported 744 metric tonnes of gold in 2023." Reuters. Bring inflation down drastically, get rid of regulations and eliminate of tax terrorism. That is a trilemma. And, it is impossible.