Income Tax Relief To Not Spur Inflation, Says RBI Governor

RBI Governor Sanjay Malhotra said on Friday that the tax relief announced in the budget would not have any major impact on inflation and would only help in India's growth.

The comments come after Finance Minister Nirmala Sitharaman announced during the budget last week that income up to Rs 12 lakh per annum would no longer be taxed under the new tax regime. Income up to Rs 12.75 lakh is now exempt, considering the standard deduction available as well. This move, aimed to provide some relief to the middle class, is also set to increase the money in the hands of the taxpayers.

Concerns around inflation being pushed higher due to this change was present. Malhotra is not worried as his take stands strong on the capacity utilisation of the country.

"There's counter questions about inflation which I don't think is really apt. I personally don't think this will have an upward impact on inflation," Malhotra said at a press conference.

"There is sufficient productive capacity that we have today. The capacity utilisation levels are at 75% and with this tax relief, it will only help us in our growth. It should not have any major impact on inflation," he added.

The Monetary Policy Committee, under the new governor Malhotra, decided to cut the repo rate by 25 basis points to 6.25%. Malhotra said the MPC also decided unanimously to continue with a 'neutral' stance. While the rate cut by the central bank was in line with the market expectations, the concerns around inflation remain.

The MPC is set to remain unambiguously focused on bringing inflation to target on a durable basis. The standing deposit facility rate is adjusted to 6%, and the marginal standing facility rate and the bank rate stand adjusted to 6.5%.

Core inflation is expected to rise but remain moderate. The FY26 retail inflation is to come at 4.2%, assuming normal monsoon. The RBI will proactively take measures to ensure orderly liquidity conditions in the banking system, Malhotra said, noting bank liquidity buffers are sufficient.

The global economic backdrop remains challenging, and the global economy is growing below historical average, he added.