While Finance Minister Nirmala Sitharaman is all set to table the Union Budget 2025-26 on February 1, 2025, Deloitte maintained that the government is expected to introduce measures that would help boost private consumption going forward. If the slowdown of private consumption continues, it will further delay the revival of the private capex cycle and it is therefore imperative to give a boost to private consumption. The forthcoming Budget is expected to do well to provide a relief to the middle class, whose purchasing power has been eroded significantly due to persistently elevated inflation of the past few years without hardly any income tax relief.
Anand Ramanathan, Partner and Consumer, Products and Retail sector Leader, Deloitte India, said, “India’s GDP growth is expected to moderate to 6.3 per cent in FY25, per World Bank estimates, reflecting the combined impact of fiscal consolidation and tighter global credit conditions. Core inflation remains at a manageable 4.8 per cent, but food inflation poses challenges at 5.1 per cent due to global supply chain disruptions. The country’s current account deficit is projected at 1.9 per cent of GDP, supported by a 13 per cent rise in services exports, mainly IT services, which contribute $325 billion annually. This economic backdrop underscores the need for prudent fiscal policies that prioritise consumption revival, infrastructure development and innovation-driven growth.”
Meanwhile, according to the RBI’s November bulletin, the slowdown witnessed in the second quarter of the current financial year (2024-25) is behind us as private consumption is again driving the domestic demand. The country’s economy is exhibiting resilience, underpinned by festival-related consumption, and a recovering agriculture sector, RBI’s ‘State of the Economy’ article said.
Deloitte pointed out three key expectations from the upcoming Budget for the retail sector and these include introduction of higher income tax exemptions to boost disposable income, reduction of GST rates on mass-consumption FMCG products, and providing targeted tax incentives for rural market development and innovation.
Here is a list of expectations from Union Budget 2025-26, as outlined by Deloitte:
Expectation 1
Higher income tax exemptions to boost disposable income: Deloitte said that the government should relax the basic income tax exemption limit under the old regime from Rs 2.5 lakh to Rs 3.5 lakh and raise the standard deduction under the new tax regime from Rs 50,000 to Rs 75,000. The increase of 5-7 per cent in disposable income for middle-income households, it added, could lead to a 6 per cent rise in consumer spending on FMCG and other essential goods. This is expected to contribute to a 0.7 per cent growth in GDP directly. Elaborating on the rationale for this expectation, Anand Ramanathan said, “With consumption accounting for over 60 per cent of India’s GDP, boosting disposable income is critical to reviving demand. The urban middle class, a significant portion of the consumer goods market, has shown a cautious spending pattern due to stagnant income growth and high inflation. Tax relief will alleviate financial pressure and stimulate spending.”
Expectation 2
Reduce GST rates on mass-consumption FMCG products: Per the Deloitte Pre-Budget Booklet, the government should lower GST rates on mass-consumption FMCG products, such as personal care and packaged foods, from 18 per cent to 12 per cent. It stated that a projected 8 per cent increase in volume sales of mass-market FMCG products, will lead to higher tax collections from increased consumption and a 0.5 per cent boost in GDP. By reducing GST, Deloitte stated, the government can offset the decline in mass-segment consumption, support small-scale FMCG manufacturers and enhance affordability for essential goods, aligning with its inclusive growth agenda.
Expectation 3
Targeted tax incentives for rural market development and innovation: Deloitte further added that the government is also expected to announce the allocation of Rs 10,000 crore FMCG Rural Growth Fund to strengthen rural distribution networks and offer tax rebates for companies investing in affordable rural product lines. It also suggested an introduction of a 150 per cent weighted tax deduction on R&D expenses for FMCG companies innovating in sustainable packaging and health-focused products. Per Deloitte, a 10 per cent growth in rural FMCG sales will contribute an additional Rs 50,000 crore in annual revenue for the industry. Rural India accounts for over 35 per cent of FMCG consumption and is poised for significant growth if supported by better distribution infrastructure and affordable products. Additionally, the Deloitte booklet states, providing incentives for R&D aligns with global trends focusing on sustainable and health-oriented goods, positioning India as a leader in innovative FMCG solutions
Further, Deloitte also zeroed in on key policy recommendations for the Union Budget
Recommendation 1
Regulating quick commerce practices for equitable retail growth: Deloitte recommended that the finance minister announce regulatory measures to curb predatory pricing and ensure transparency in fund usage by quick commerce platforms. “This includes introducing compliance with FDI norms, fair trade practices and supply chain transparency,” it added while maintaining that an ethical code of conduct should be developed that protects small retailers, distributors and Kirana stores from market distortions caused by deep discounting and other anti-competitive practices.
Recommendation 2
Expanding the PLI Scheme for the consumer goods industry: Deloitte further recommended expansion of the scope of the Production Linked Incentive (PLI) scheme to include high-demand sub-sectors within the consumer goods industry, such as home appliances, personal care products and small consumer electronics. “The expanded policy should include simplified application processes, measurable performance-linked benchmarks and targeted benefits for MSMEs to enhance participation across all tiers of the manufacturing ecosystem,” it said.
Recommendation 3
Enhance rural demand through targeted subsidies and skill development programmes: Instead of focusing solely on income support, Deloitte said, the government should enhance rural livelihoods by increasing budget allocations for skill development programmes, such as Pradhan Mantri Kaushal Vikas Yojana, tailored to the specific needs of rural regions. Furthermore, subsidies on agricultural inputs such as fertilisers, seeds and irrigation equipment should be recalibrated to ensure affordability without creating fiscal strain. Also, introducing interest-free micro-loans for rural entrepreneurs could stimulate small business activity, creating additional employment opportunities.