Tax bonanza in Budget: A (middle) class action to boost demand

The budget is likely to trigger a revival in consumption, especially in urban areas, as a reduction in personal income tax leaves more money in the hands of the urban middle class, said executives at leading consumer goods companies.

For the past three quarters, urban demand for groceries and lifestyle products to smartphones and TVs has been challenging due to inflationary pressures, low wage growth and higher housing rentals. “The substantial tax relief measures will provide essential financial respite to middle-class families, increasing their disposable income, encouraging spending, and promoting overall economic growth,” said Mohit Malhotra, chief executive officer at FMCG company Dabur. “This focus on the middle class addresses a longstanding demand,” he said, adding that the step will help arrest a protracted slowdown in urban consumption and return it to the growth path.

FM said there will be no tax on salary of up to Rs 12 lakh. Even at the higher end, the maximum tax rate of 30% will be applicable for incomes exceeding Rs 24 lakh versus Rs 15 lakh earlier. FMCG sales rose 3% YoY in December quarter, with urban markets growing only 0.5%, while rural sales rose 5%. “For middle-class families, tax relief and enhanced social security measures will uplift sentiment and drive consumption. This will provide much-needed financial stability to masses,” said Saugata Gupta, MD, Marico.


Sales growth in organised retail segments such as apparel, footwear, beauty and quick service restaurants was in mid-single digits in 2024, compared to 15% in 2022, the year before the slowdown began. “Middle-class was the most affected due to inflation and low income growth and the budget will definitely put higher savings in their pockets. We expect consumers to use the savings for consumption and not towards asset buying, driving the retail segment which has been under pressure,” said Lalit Agarwal, chairman at V-Mart, the listed retail chain that primarily operates in smaller towns. Over the past decade, sales of branded daily needs goods have increasingly relied on rural India, home to more than 800 million people whose purchase behaviour is largely linked to farm output.

The allocation of Rs 1.71 lakh crore to agriculture and allied activities, coupled with many initiatives, will drive agricultural productivity and stabilise rural economies, according to companies.