Budget 2025 should provide a boost to consumption, say economists in an MC poll

Govt should provide a consumption boost say economists

A push for consumption may be in the offing in the upcoming budget with the government going for tweaks in income tax rates to benefit lower income level households, according to economists in a Moneycontrol poll.

Of the 12 economists who responded to the questions on consumption, 11 expected some action to boost spending by households. In yet another response, 11 of 12 economists noted that there was a case for rationalisation of income tax rates .

“The government may push consumption to a very small extent by providing some relief to taxpayers at the lower end of the income tax bracket. However, we think that the impact of the same will be limited and, hence, the government will remain cautious of any significant changes to boost consumption,” said Indranil Pan, chief economist, Yes Bank.

Seven of 11 economists polled by Moneycontrol cited private consumption as one of the primary concerns facing the economy.

Rajani Sinha, chief economist at CareEdge, highlighted “Slowing consumption, slower job creation, and external headwinds like geopolitical risks and policy uncertainty in the US” as primary concerns.

However, the economists also pointed out that any action would need to be mindful of limited fiscal manoeuvrability.

“We see limited room for a large consumption boost due to limited fiscal space, even as growth is moderating and the external environment remains uncertain. While some support for farmers via increased allocation to the farmer income scheme and/or income tax relief to the middle class are possible, we think accommodating these will either require lower capex spending or a reduction in other recurrent expenditure. Both look challenging to us,” Standard Chartered economists Anubhuti Sahay and Saurav Anand said.

Standard Chartered pegs the tax benefit to cost 0.04 percent of GDP.

India’s consumption growth in 2024-25 at a likely 7.3 percent was better than the 4 percent posted in the previous fiscal.

City-side concerns

Economists contend that urban demand may be weakening.

“Compared to the pre-covid levels, private consumption expenditure remains on the lower side. Inflation being on a relatively higher level is pulling down the real wage growth for both the rural and urban segments. While post-covid, private consumption was driven by growth in urban consumption, it has tended to reach some sort of saturation level and has thus tended to stagnate. The slack created is yet to be taken up by the rural segment,” Pan noted.

An earlier analysis of poll data showed that economists expect the government to continue on the fiscal consolidation path and project a fiscal deficit of 4.5 percent.