Near-term consumption kicker in Budget 2024

What will lead to a consumption boost this financial year?

There’s very likely to be a bump up in consumption this year on account of the budget. This impact should show up in the next 12 months, which is distinct from the long-term impact of other budget proposals.

The immediate impact on consumption will come through two channels.

Fiscal support for jobs

Annexures to Finance Minister Nirmala Sitharaman’s budget speech showed the union government expects to spend Rs 1.07 trillion as fiscal incentives to enable creation of jobs for new entrants into the market, and also additional jobs.

In all 29 million jobs are expected to be created on account of these incentives.

Job creation may not happen immediately, but if the incentives are released soon they will begin to create jobs this year and the experience will improve the employability of beneficiaries. These schemes, which span a direct transfer of Rs 15,000 as wage to subsidies to provide formal jobs, will create grounds for a sustained consumption boost. Jobs are the best way to push consumption.

Income tax benefits

The second channel to provide a consumption boost is likely to come from people who are already earning an income, but will now find themselves with a higher post-tax disposable income.

More than 66 percent of income tax payers are a part of the new tax regime. This regime has received benefits in the form of a higher standard deduction and a change in slabs which can put up to Rs 17,500 as extra post-tax income in the hands of tax payers.

Another change in the budget is that the deduction on family pension has increased from Rs 15,000 to Rs 25,000.

The tax and pension change together can leave extra income in the hands of about 40 million people.

The cumulative impact of fiscal benefits for job creation and tax changes will lead to a consumption boost this financial year.