Budget 2025-26 should focus on consumption boost: CII Director General
Reduce Excise Duty on Fuel: CII
“Domestic consumption has been critical to India’s growth story, but inflationary pressures have somewhat eroded the purchasing power of consumers. Government interventions could focus on enhancing disposable incomes and stimulating spending to sustain economic momentum”, said Mr Chandrajit Banerjee, Director General, CII.
“Persistent food inflationary pressures particularly impinge upon low-income rural households who allocate larger share to food in their consumption basket”, added Mr Banerjee.
“While recent quarters have shown promising signs of recovery in rural consumption, targeted government interventions, such as increasing per unit benefit under its key schemes like MGNREGS, PM-KISAN and PMAY, and providing consumption vouchers to low-income households, can further enhance the rural recovery”, remarked Mr Banerjee.
To boost consumption, especially at the lower income level, CII in its budget proposals for 2025-26 has suggested the following targeted interventions:
First, reducing excise duty on fuel is crucial as fuel prices significantly drive inflation, forming a substantial portion of the overall household consumption basket. The central excise duty alone accounts for approximately 21 per cent of the retail price for petrol and 18 per cent for diesel. Since May 2022, these duties have not been adjusted in line with the approximately 40 per cent decrease in global crude prices. Lowering excise duty on fuel would help reduce overall inflation and increase disposable incomes.
Second, the gap between the highest marginal rate for individuals at 42.74 per cent and the normal Corporate Tax Rate at 25.17 per cent, is high. Further, inflation has reduced the buying power of lower- and middle-income earners. The Budget could consider reducing marginal tax rates for personal income upto Rs 20 lakh per annum. This would help trigger the virtuous cycle of consumption, higher growth and higher tax revenue.
Third, increase the daily minimum wage under the MGNREGS from Rs 267 to Rs 375 as suggested by the ‘Expert Committee on Fixing National Minimum Wage’ in 2017. CII Research estimations show that this will entail an additional expenditure of Rs 42,000 crore.
Fourth, raise the annual payout under the PM-KISAN scheme from Rs 6,000 to Rs 8,000. Assuming 10 crore beneficiaries, this will entail an additional expenditure of Rs 20,000 crore.
Fifth, increase the unit costs under the PMAY-G and PMAY-U schemes, which have not been revised since scheme’s inception.
Sixth, introduce consumption vouchers, targeted at low-income group, to stimulate demand for specified goods and services over a designated period. The vouchers could be designed to be spent on designated items (specific goods and services) and could be valid for a designated time (like 6-8 months), to ensure spending. The beneficiary criteria can be defined as Jan-Dhan account holders who are not beneficiaries of other welfare schemes.
Highlighting the weakening trend in household savings, Mr Banerjee noted that “low returns on bank deposits compared to other avenues such as equities and mutual funds, coupled with a higher tax burden on interest income, have made bank savings less attractive”.
Bank deposits as a proportion of household’s financial assets have declined from 56.4 per cent in FY20 to 45.2 per cent in FY24. To encourage bank deposit growth, CII, in its budget proposals for 2024-25, has suggested taxing interest income from deposits at a lower rate and reducing the lock-in period for fixed deposits with preferential tax treatment from current five to three years, can help boost bank deposits.
28 December 2024
New Delhi