Former Finance Minister P Chidambaram’s address in Parliament yesterday was high on rhetoric but lacked factual accuracy. I have responded to 6 of his key allegations with detailed response notes and facts. While attempting to critique the current government’s economic policies, he conveniently ignored the financial mismanagement, high inflation, and reckless lending practices that defined the UPA era. It’s time to set the record straight with facts.
Statement 1
Former Finance Minister P. Chidambaram’s recent assertion that the 2025 Budget should have included a reduction in Indirect taxes, particularly on petrol and diesel, alongside the income tax cuts, warrants a closer examination of the fiscal implications and economic strategies involved. Let us see the truth:
It’s important to note that petrol and diesel are currently outside the purview of GST. 96%+ meetings of the GST Council have taken decisions unanimously. Even DMK and Congress FMs have opposed Petrol under GST. So Instead, now they are subject to excise duties imposed by the central government and VAT by state governments. As of the latest data, the excise duty is ₹19.90 per litre for petrol and ₹15.80 per litre for diesel. Additionally, state governments levy VAT, which varies across states. Chidambaram must note that the Congress government’s ally DMK in Tamil Nadu is unable to implement even a ₹4 cut that they promised vigorously in 2021 while the NDA Govt reduced Central Excise duty fully from Central Share by a total of ₹13/litre and ₹16/litre on petrol and diesel respectively in two tranches in November 2021 and May 2022, which was fully passed on to consumers. Some state governments also reduced state VAT rates to provide relief to citizens. In March 2024, OMCs also reduced the retail prices of petrol and diesel by ₹2 per litre each, across the country.!! Instead of asking a govt that has reduced its portion of prices by ₹15 since 2021, he should instead ask tough questions to his ally the DMK and the Chief Minister of TN.
Income Tax Reduction and Consumption
The 2025 Budget’s decision to cut personal income tax rates aims to increase disposable income for the middle class, thereby boosting consumption. Estimates suggest that these tax cuts will inject approximately ₹1 lakh crore into the hands of consumers. Considering a marginal propensity to consume of 80%, this could lead to an overall increase in consumption of about ₹5 lakh crore, representing approximately 2.7% of GDP. This surge in consumption is expected to stimulate demand across various sectors, fostering economic growth. While the suggestion to reduce taxes on petrol and diesel is well-intentioned, it’s crucial to balance such measures against fiscal responsibilities. The current strategy of reducing personal income taxes is designed to boost consumption without compromising essential government revenues. Therefore, the approach taken in the 2025 Budget aligns with the broader objective of sustaining economic growth while maintaining fiscal prudence.
Statement 2:
Chidambaram compared the Finance Minister’s budget allocation for the External Affairs Ministry (MEA) to Elon Musk’s cost-cutting strategies is misplaced and ignores economic realities. Here’s why:
Budget Allocation vs. Effective Spending
MEA’s core functions—diplomacy, international trade relations, foreign aid, and security cooperation—are shifting towards efficiency-driven models, with greater digital diplomacy, AI-driven consular services, and targeted foreign policy interventions. The previous budget allocation of ₹28,915 Cr was underspent, leading to ₹3,638 Cr of unused funds in FY 2023-24. A lower allocation reflects realigned priorities, not a shrinking global presence.
International Best Practices: Efficiency > Expansion
Global trends show that leaner diplomatic budgets improve agility rather than dilute influence. Example: The UK Foreign Office saw a 10% budget cut in 2022 yet strengthened global influence through strategic alliances and AI-powered diplomacy.
India’s Diplomatic Presence is Expanding, Not Shrinking
New Embassies Opened in Africa, Indo-Pacific: India has expanded its diplomatic missions, particularly in Africa and the Pacific, countering China’s influence. G20 Presidency showcased India’s leadership—a global-first strategy that focused on outcomes over excessive spending.
Fiscal Prudence & Growth Priorities
The Budget 2025 prioritizes economic growth, infrastructure, defense, and social sector spending, which aligns with long-term global positioning. A smaller MEA budget does not mean reduced influence—it means a focus on strategic diplomacy, not wasteful expenditure.
Verdict: Chidambaram’s “Elon Musk” analogy is mud mathematics. Budget efficiency ≠ Diplomatic weakness India is expanding its influence through smart diplomacy, not excessive spending Strategic prioritization is the hallmark of modern global leadership Smart foreign policy is about outcomes, not just budget size.
Statement 3:
Chidambaram criticized the income tax cuts in Budget 2025, arguing that while they provide relief to the middle class, they also disproportionately benefit the richest taxpayers. He claimed that 2.27 lakh people earning over ₹1 crore, 262 people earning over ₹100 crore, and 23 people earning over ₹500 crore would also benefit from the revised tax slabs.
Response:
The Reality of Tax Savings
Maximum tax savings per taxpayer = ₹1.10 lakh. How much do high-income earners actually save?
- ₹1 crore+ earners (2.27 lakh people): 1.1% of their income saved
- ₹100 crore+ earners (262 people): 0.011% of their income saved
- ₹500 crore+ earners (23 people): 0.0022% of their income saved
Chidambaram’s claim that the rich gain disproportionately is misleading -for ultra-high earners, ₹1.10 lakh is an insignificant fraction of their income. Middle-class gains the most—80-85 lakh taxpayers exit the tax net, keeping more of their earnings to spend, invest, and drive economic growth.
Economic Growth & Consumption Impact
₹1 lakh crore back into taxpayers’ hands → ₹5 lakh crore consumption boost (~2.7% of GDP). Increased spending stimulates businesses, drives demand, and creates jobs. Countries like the US, UK, and Singapore have used direct tax cuts to boost demand and drive GDP growth.
Final Verdict: Chidambaram’s Argument is Mud Mathematics. If this is how he calculated numbers when he was FM, then India did well not to become bankrupt during his term. Numbers don’t lie—the tax cuts are designed for middle-class relief, not a giveaway to billionaires. Tax policy is structured to stimulate demand, ensuring broad-based economic growth. Smart taxation fuels consumption, investment, and economic stability—not misleading populism.
Statement 4:
Chidambaram questioned how the Finance Minister (FM) could claim 11.1% growth in net tax revenues in 2025-26 despite foregoing ₹1 lakh crore in tax cuts. He argued that the ₹1 lakh crore is only 0.3% of GDP (₹324 lakh crore) and doubted its impact on economic growth. He also suggested that a portion of this tax relief would go into savings, debt repayment, and foreign spending, rather than domestic consumption. He further pointed out that even the SBI Chairman expects part of the ₹1 lakh crore to go into savings, implying that it may not fuel domestic consumption as projected.
Response:
Why is the 11.1% Tax Revenue Growth Achievable?
Chidambaram calls it “magic,” but it’s mathematics. Despite the ₹1 lakh crore tax cut, net tax revenues will still increase by ₹3.49 lakh crore due to:
- Stronger GST collections from increased consumption.
- Corporate tax buoyancy as businesses grow.
- Higher direct tax compliance as economic activity expands.
Even in 2024-25, net tax revenue grew by 11% despite earlier tax adjustments—proving that growth-driven policies offset short-term revenue losses.
Consumption vs. Savings: The SBI Chairman’s View Supports Growth
Chidambaram assumes that savings don’t contribute to economic expansion, which is incorrect. SBI Chairman’s expectation of increased savings is actually good for the economy:
- Higher savings → Increased bank deposits → More credit availability
- Increased credit → More business loans → Higher business expansion & sales
- Higher investment → More jobs & economic momentum
Empirical data from past tax cuts (India & globally) show that increased disposable income leads to greater spending, even if part of it goes to savings or debt repayment.
Does 0.3% of GDP Matter? Yes!
₹1 lakh crore is 0.3% of GDP, but its impact is amplified through the consumption multiplier. With a spending multiplier effect of ~5x, this translates to a ₹5 lakh crore boost to demand (~2.7% of GDP), not just 0.3%.
Example: The US tax cuts in 2018 were around 0.4% of GDP but led to a significant economic expansion.
Other Growth Engines: FM is Already Acting on It
- Exports: PLI schemes, global trade agreements, and Make-in-India initiatives are expanding export potential.
- Capex: The FM has allocated record-high infrastructure spending, which directly fuels economic growth.
- Balanced Growth Strategy: Tax cuts + infrastructure + exports = sustained economic expansion.
To sum up: 11.1% revenue growth is backed by data, not “magic.” Savings don’t disappear—they fuel investment & credit expansion. A ₹1 lakh crore tax cut translates into a much larger GDP impact. Even the SBI Chairman’s expectation of increased savings is an economic positive, as it fuels lending and business expansion. Smart economics relies on multiple growth levers, not just tax collections. This is sound policy, not guesswork.
Statement 5:
Chidambaram criticized the Finance Minister’s claim of improving the fiscal deficit from 4.9% to 4.8%, arguing that this was achieved by rationalizing capital expenditure (capex) by ₹1.83 lakh crore. He claimed that this adjustment reduced the fiscal deficit by ₹43,785 crore, which accounts for 23.85% of the total capex rationalization, and argued that this was not sound economic policy. He further pointed out adjustments in key sectors. Additionally, he highlighted adjustments in flagship welfare schemes like Poshan, Jal Jeevan Mission, Crop Insurance, Urea Subsidy, PM Gram Sadak Yojana, and SC/ST Scholarships, calling them “cruel cuts.”
Response:
Fiscal Deficit Improvement: The Right Approach
Fiscal discipline is a necessity, not an afterthought. Rationalizing spending ensures lower borrowing costs, stable inflation, and a better credit rating—key for attracting foreign investment and maintaining economic growth. Even after fiscal adjustments, India has the highest capital expenditure allocation in history—₹11.21 lakh crore for FY26 (3.1% of GDP).
Before 2014, average capex allocations were significantly lower. The current capex level is a strategic shift toward long-term growth, not a reduction.
Capex Rationalization: Strategic & Temporary, Not Permanent
Capex isn’t stopped—it’s optimized for maximum efficiency. Projects facing delays are realigned to ensure high-impact infrastructure investments rather than wasteful expenditure. Even with rationalization, India’s capex-to-GDP ratio remains among the highest globally. Countries like Germany & the UK have strategically adjusted capex in economic slowdowns while ensuring sustainable deficit management.
Social Sector Spending: The Full Picture
Despite realignment, social spending remains strong: ₹86,175 crore was allocated for healthcare. PM Awas Yojana’s budget has increased. Food security & rural employment schemes remain fully funded. Education & scholarships continue under efficiency-focused models. Reprioritizing inefficient spending does not mean abandoning welfare. Balanced expenditure ensures fiscal health while meeting social obligations.
Tax Cuts & Economic Growth: Not Magic, but Sound Economics
Tax cuts = more disposable income = higher demand. ₹1 lakh crore in tax relief is not just 0.3% of GDP—it has a 5x multiplier effect, boosting demand by ₹5 lakh crore (~2.7% of GDP). Savings don’t disappear—they fuel bank deposits, increase credit availability, and drive business expansion. Even the SBI Chairman acknowledged that increased savings would strengthen credit availability, fueling business growth. 11.1% revenue growth is not an illusion—it’s a result of expanding tax compliance, GST collections, and business growth.
To sum up: Fiscal discipline ensures long-term stability, not reckless spending. Capex rationalization is temporary & strategic—high-impact projects continue. Tax cuts fuel demand, and savings enhance credit & business expansion. Welfare spending remains intact, with a focus on efficiency. Smart fiscal management prioritizes sustainable economic expansion, not short-term populism.
Statement 6:
Chidambaram criticized the budget for not addressing inflation’s impact on Indian households He argued that GST, fuel taxes, and wage policies should have been adjusted to ease financial pressure on low-income households.
Response:
Let’s go by data. Under the UPA, inflation averaged 8.1% (2004-14); under the NDA, it stands at 5.1%. Also, India’s Inflation is lower than global trends.
Inflation in India is lower than in most major economies:
- Global Average (2012-24): 4.66%
- US: 5.3%
- UK: 6.2%
- Eurozone: 6.8%
India has managed inflation better than developed economies despite global crises (pandemic, supply chain disruptions, oil price spikes). Food inflation is lower than education & healthcare because of strong PDS and government food programs. Healthcare inflation is being tackled with Ayushman Bharat & public health infra investments. Education reforms & scholarships continue to improve affordability.
Household Savings: The Right Perspective
The savings rate declined from 25.2% (2012) to 18.4% (2024) is due to higher spending & investment, not just inflation.
Banking deposits have surged, proving that people are investing their savings more productively.
SBI Chairman has noted that tax savings from Budget 2025 will increase bank deposits, improving credit access & business expansion. Government schemes like PM Jan Dhan Yojana have boosted financial inclusion, increasing access to credit & reducing reliance on informal loans.
Tax & Fiscal Strategy is Designed for Sustainable Growth
GST Adjustments: India already has one of the lowest GST rates on essential goods globally to protect consumers.
Fuel Taxes: A reduction in fuel taxes would reduce government revenue needed for welfare & infrastructure. Instead, India is promoting EV adoption & alternative fuels to mitigate fuel cost burdens.
Capex & Job Creation: Instead of raising MGNREGA wages, the focus is on higher-value employment in manufacturing & services, ensuring sustainable income growth. Real wages & employment data show that job creation is outpacing inflationary pressures.
To sum up: India’s inflation is lower than most global economies. Household savings shift towards investments & productive growth, not just consumption pressure. Budget 2025’s tax relief will increase disposable income, boosting spending & savings. Targeted welfare schemes ensure essential spending on food, education, & healthcare remains supported. This is sustainable economic policy, not short-term populism.
S Sundar Raman is a Chartered Accountant and the Vice President of BJP Tamil Nadu’s Thinker’s Cell
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