Â
Union Finance Minister Nirmala Sitharaman is preparing to address a challenging economic landscape as she approaches the presentation of Budget 2025-26 on February 1. India’s economy faces inflationary pressures, driven by high food prices, and a slowdown in growth, with private consumption remaining a key area of concern. Reviving this consumption, particularly in the middle class, will be essential for sustaining economic momentum.
India's GDP growth rate decelerated to 5.4% in the second quarter of the current fiscal year, marking an 18-month low. The slowdown in consumption was largely responsible for this dip. In response, the Reserve Bank of India (RBI) revised its real GDP growth forecast for 2024-25 down to 6.6%, citing global uncertainties, volatile commodity prices, and fragmented economic conditions. These developments have created significant pressure on the government to implement measures that can reignite growth, particularly through consumption, which is a major driver of economic recovery.
Experts, including those at Deloitte, have underscored the importance of focusing on middle-class relief and consumption revival in the upcoming Budget. Anand Ramanathan, Partner and Leader for the Consumer Products and Retail sector at Deloitte India, predicts that GDP growth is expected to moderate further to 6.3% in FY25 due to fiscal consolidation and tighter global credit conditions. While core inflation is under control at 4.8%, food inflation remains a concern at 5.1%, adding strain to household budgets. Deloitte also highlighted that the current account deficit is projected to be 1.9% of GDP, though a strong 13% rise in services exports, particularly IT services, could help mitigate some of the challenges.
In this economic context, Deloitte has made three key recommendations for Budget 2025, aimed at boosting private consumption and addressing broader economic concerns:
-
Higher Income Tax Exemptions: Deloitte proposes increasing the basic income tax exemption limit under the old tax regime from Rs 2.5 lakh to Rs 3.5 lakh. Additionally, it suggests raising the standard deduction under the new tax regime from Rs 50,000 to Rs 75,000. This move could increase disposable income for middle-income households by 5-7%, potentially driving a 6% rise in consumer spending on essential goods and contributing to a 0.7% boost to GDP.
-
Lower GST Rates on Mass-Consumption FMCG Products: Deloitte recommends reducing the Goods and Services Tax (GST) on mass-consumption FMCG products, including personal care items and packaged foods, from 18% to 12%. This reduction could lead to an 8% increase in the volume sales of these products, benefiting both consumers and manufacturers. Additionally, it would likely result in higher tax collections and a 0.5% increase in GDP, while making essential goods more affordable to consumers.
-
Targeted Tax Incentives for Rural Markets and Innovation: To stimulate demand in rural markets, Deloitte proposes the creation of a Rs 10,000 crore FMCG Rural Growth Fund to improve distribution networks and provide tax rebates for affordable rural product lines. Additionally, the firm suggests a 150% weighted tax deduction on research and development (R&D) expenses for FMCG companies focused on sustainable packaging and health-related products. Deloitte estimates that a 10% growth in rural FMCG sales could add Rs 50,000 crore in annual revenue for the sector.
These proposals reflect the urgent need for the government to act decisively to revive consumption, particularly in rural areas and among the middle class, to ensure sustainable economic growth. By prioritizing fiscal measures that incentivize spending and innovation, Budget 2025 could play a crucial role in addressing the current economic slowdown and setting the stage for a recovery in the years ahead.
