FM’s Tax Gift: Will Budget 2025 Fuel India’s Consumer Economy?

Finance Minister Nirmala Sitharaman breathed fresh life into the salaried middle class with the Union Budget 2025 by announcing zero income tax for anyone earning up to INR 12 Lakh a year.

“This government under the leadership of PM Modi has always believed in the admirable energy and ability of the middle class in nation building. In recognition of their contribution, we have periodically reduced their tax burden,” she told a House waiting keenly for the mega announcement. 

“From 2019 to 2023, we have periodically raised the nil tax slab which was up to INR 7 Lakh in 2023. I am now happy to announce that there will be no income tax up to an income of INR 12 Lakh.This benefit will be up to INR 12.75 lakh for salaried individuals, including standard deductions of INR 75,000.” 

The House broke into the “Modi, Modi” slogan as soon as the finance minister declared the huge exemption in personal income tax in her budget speech.    

Sitharaman asserted that the measure has been introduced to boost savings, consumption and investments for providing significant relief to the middle class. She also proposed to revise the tax slabs in the new tax regime under various income brackets which will benefit individuals across income groups. 

Experts called it a bold and huge move since the government will have to forego about INR 1 Tn ($11.6 Bn) in tax revenues to provide more cash in the hands of the people. In fact, the government had read the writing on the wall that it needed to step in to boost private consumption which had been slacking over the last couple of years. 

The Economic Survey 2025 pointed out that the private final consumption expenditure (PFCE) strengthened in the first half of FY25, growing 6.7% over the last year, primarily because of robust rural demand.

It said the FMCG sales have been moderate in the first half of this fiscal due to lower urban demand. This had reflected earlier too in the weak financials of top retail companies. Management commentaries from some major FMCG companies like HUL hinted at financial stress in middle-income urban households which led to lower spendings.

Budget Boost To Broad-Based Consumption 

The government’s thrust to boost consumption by increasing the purchasing power of low and middle income groups, coupled with investments in tourism, social security to gig workers, and credit to farmers is being lauded as a comprehensive measure which will ensure higher overall liquidity in the market. 

“This really is a 360-degree budget which takes care of the fact that India will add 100 Mn middle income households in the next few years from where the private consumption stems. While we see the personal income tax measures as a silver lining, we have to take a finer look at how the investments in smaller sectors and infrastructure will continue. There is also a greater likelihood of capital markets doing well in the long term with people investing more in stocks as disposable incomes grow,” Anand Ramanathan, partner and leader of consumer, products and retail sector at Deloitte, told Inc42.

Ramanathan acknowledged that there was a deceleration of urban demand in the last quarter with sales volumes in mass-market segments declining as much as 10% sequentially. 

He was seconded by Siddarth Pai,  the founding partner, chief financial officer, and ESG officer of 3one4 Capital. According to Pai India’s growth path will be more reliant on consumption, as opposed to China’s, which was led by manufacturing. 

“The degrowth in consumption, signalled by the FMCG companies in India, raised alarm bells. Decreasing consumer spending and a throttling of consumer credit by the RBI slowed the Indian economy dramatically. This led the government to boost the disposable income available to a vast majority of Indians through increased tax rebate. This will increase consumption, GST and corporate income – kickstarting a virtuous cycle of investment and further economic growth,” Pai said. 

Relief To Consumer Internet Companies 

Large consumer internet companies like publicly listed Swiggy, Zomato, Paytm and smaller D2C startups will see marked growth in revenues fuelled by demand from the middle income groups, analysts and industry leaders believe. 

New-age companies such as Zomato, like many FMCG firms, posted weak financials in the December quarter because of factors like tepid demand. 

D2C startups, with a few exceptions, have also been at the receiving end of a slump in urban demand, especially among GenZ and millennials.

With an overall increase in the cash reserves across income brackets, there is a likelihood of the new-age companies being on stronger revenue trajectories, according to experts.

“If you look even at the trajectory of listed consumer internet companies like Zomato, there has been slowed growth in the last quarter due to slackening demand. With higher disposable incomes, it will drive higher volumes of spending with a majority of the salaried employees still earning below INR 15 lakh. This will impact the revenue trajectory as well as stock performance of publicly listed internet companies like Swiggy and Zomato, which bet on consumption,” Pai told Inc42. 

Ramanathan predicts a sizeable spending on quick commerce and ecommerce platforms. “The income groups in the range of INR 3 lakh to INR 30 lakh have been driving the e-commerce sales rapidly. However, when it comes to stock performance of new-age companies, demand alone will not be a factor, which will contribute to their public markets growth. Their path to profitability will be the most significant deciding factor,” he said.

[Edited By Kumar Chatterjee]