Budget 2025: Experts Pitch For Tax Relief, Urgent Consumer Spending Revival

Budget 2025: Experts Pitch For Tax Relief, Urgent Consumer Spending Revival

SUMMARY

The urban FMCG sector, a key driver of India’s consumption narrative, has suffered a major slowdown in the mass-market segments through most part of 2024

Consumers, both in villages as well as in cities, have significantly cut down on non-food items

As Nirmala Sitharaman gears up for the Union Budget 2025-26 to be tabled on February 1, there is mounting anticipation that she will propose measures to stimulate consumption across the economy

The cry for a boost to revive India’s consumption story turns louder as the day of the Union Budget for 2025-26 nears. Higher interest rates, tepid salary hikes, poor job prospects, and a host of factors have sent out warning signals for consumer services startups and B2C tech companies across sectors.

The urban FMCG and retail sector, a key driver of India’s consumption narrative, has suffered a major slowdown in the mass-market segments through most part of 2024 with companies reporting a slump in sales.

D2C/">D2C brands and ecommerce marketplaces have so far staved off the slowdown that legacy FMCG and retail players have been grappling with – largely because of premiumisation and deep discounting – but a deceleration is on the horizon, alerted experts, unless there’s a revival in consumer spending.

As Finance Minister Nirmala Sitharaman gears up for the Union Budget 2025-26 to be tabled on February 1, there is mounting anticipation that she will propose measures to stimulate consumption even for the new-age economy.

A sequential recovery in consumer demand came as a breather for both urban and rural markets in the third quarter of 2024. Rural markets, however, outsmarted cities with consumption growth accelerating at 6% from 5.2% in the previous quarter, as against a 2.8% rise for urban markets from 2.1% in this period, according to a NielsenIQ report.

Consumers, both in villages as well as in cities, have significantly cut down on non-food items, showed the Household Consumption Expenditure Survey 2023-24, released by the Ministry of Statistics and Programme Implementation (MoSPI) on Friday. Rural households reduced expenses such as medical care, education, rent, fuel, and durable goods. Their urban peers spent less on items like paan, tobacco, fuel, medical care, transport, durable goods, and consumer services. This reflects a broader decline in discretionary spending across segments, pointed out the report.

The narrowing of the consumption gap between the two markets indicates a steeper cut in spending by urban households, shows the Survey fact sheet.

Industry experts have been vocal about tax reliefs, which are long overdue, as these are essential to drive disposable incomes and consequently boost consumption. Since household consumption accounts for 60% of India’s GDP, this is crucial for a healthy economic growth.

Relaxation In Income Tax In Budget 2025?

Anand Ramanathan, who leads the consumer products and retail sector for Deloitte in South Asia, stressed on the need of higher exemptions in income tax to boost disposable income. He suggested relaxing the basic exemption limit under the old regime from INR 2.5 Lakh to INR 3.5 Lakh and increasing the standard deduction under the new tax regime from INR 50,000 to INR 75,000.

These can translate into a 5–7% rise in disposable income for middle-income households, potentially driving a 6% rise in consumer spending on FMCG and other essential goods, and directly contributing to a 0.7% GDP growth, according to him.

Ramanathan found an echo in the views of Saugata Gupta, the managing director and chief executive of Marico Limited. “Tax relief measures for the middle-class and salaried classes will enhance their disposable incomes, translating into higher demand, thereby boosting economic activity, especially in urban India,” he said.

Lowering Of GST Rates

Dinkar Sharma, company secretary and partner at Jotwani Associates, wants the Budget to align fiscal policies with broader economic reforms to sustain growth. “We expect the Union Budget to focus on creating a more business-friendly environment by promoting ease of compliance for businesses. Rationalising GST slabs, broadening the tax base through technology-driven compliance, and offering targeted incentives to startups and MSMEs in the tech and green energy sectors could drive growth,” he said.

Ramanathan suggested reducing the GST rates on mass-consumption FMCG products, such as personal care items and packaged foods, from 18% to 12%. “This is expected to drive an 8% increase in volume sales of these mass-market products, which would lead to higher tax collections,” he argued.

“We need to recognise that managing a budget is always a balancing act. On one hand, the government must raise funds to govern the country effectively. On the other hand, increasing disposable income can stimulate the economy,” said Sonal Arora, country manager of GI Group Holding.

She pitched for relief on taxation, especially for salaried individuals. “While reducing GST slabs may not typically happen during the budget process, such measures could help enhance disposable income.”

The Job Creation Roadmap

A higher disposable income cannot be achieved without increased government spending on job creation. Successful initiatives like production-linked incentive schemes and employment schemes may help reinvigorate the economy if they are bolstered.

“Instead of relying heavily on subsidies, the focus should shift towards job creation. There are limitations to how much subsidies alone can uplift the lives of common citizens. Strategic investments in skill development and creating an enabling ecosystem for companies to expand operations are the key. This aligns with the broader concept of a circular economy, which ensures sustainable and continuous economic growth,” Arora said.

Marico’s Gupta said a lot has been discussed on the moderation in urban consumption due to rising inflation, particularly in food. It is anticipated that the budget will address these challenges through measures that could provide some relief to consumers.

“We expect continued emphasis on rural upliftment, with investments towards infrastructure development, technology upgrade, strengthening of rural distribution networks, and employment generation that will bolster the rural agricultural and non-farm economy, and further enhance rural consumption. These actions will also directly and indirectly enable new job opportunities,” he added.

Ramanathan pointed out that the rural economy, which plays a crucial role in the country’s GDP, requires targeted interventions to sustainably revive demand. “Rather than solely focusing on income support, the government should prioritise enhancing rural livelihoods by increasing budget allocations for skill development programmes, such as the Pradhan Mantri Kaushal Vikas Yojana, which should be tailored to the specific needs of rural regions.”

He also called for recalibration in subsidies for agricultural inputs like fertilisers, seeds, and irrigation equipment to ensure affordability.

Lots are being said about directly boosting consumption, but many industry experts believe this will not happen in the short term. “There is a lot of expectation from the government to boost consumption. This, we believe, is unwarranted,” brokerage firm Motilal Oswal said. “The government needs to focus on improving household income growth, rather than consumption. Apart from simplifying and lowering indirect taxes, any support to the construction sector would be highly effective.”

[Edited by Kumar Chatterjee]