Budget 2025 puts Rs 1 trillion in India’s pocket. Will it spend for its economy?

Consumer spending is set to increase due to a mix of personal income tax changes, reductions in indirect taxes, and a strong emphasis on public investment in the budget.

According to a Money Control report, the immediate impact of these income tax changes will result in an additional Rs 1 lakh crore in the hands of taxpayers, representing about 10% of personal income tax collections for FY25. Essentially, the government is returning Rs 1 lakh crore to consumers in FY26.

With these significant tax concessions, one can assume that it would lead to Rs 70,000 crore of consumption.

The critical question now is whether this influx of money will lead to heightened consumer spending, which could, in turn, stimulate economic growth.

The effective increase in disposable income for taxpayers may be under Rs 80,000, but individuals will still benefit from higher post-tax salaries.

Moreover, changes in indirect taxes, particularly the reduction of basic customs duties on mobile phone inputs, are expected to further stimulate consumption. This move is likely to drive more purchases and enhance the trend toward premium products.

Finance minister Nirmala Sitharaman said that direct tax changes would lead to an immediate revenue foregone of Rs 1 lakh crore. However, the boost in consumption is expected to bring some of that revenue back to the government through GST.

According to Money Control report, in addition to direct tax changes, the budget’s ongoing focus on public investment will also contribute positively.

Initiatives like 50-year interest-free loans of Rs 1.5 lakh crore to states for capital expenditure will stimulate economic activity and increase incomes. With these loans already in place for several years, a backlog of projects is ready to be activated, leading to immediate consumption benefits from the resulting income flow, added the report.

The budget aims to accelerate private consumption, which saw a significant uptick in FY25, creating a ripple effect throughout the economy. Since private consumption accounts for approximately 56-60% of GDP, it remains a crucial pillar for India’s economic stability.