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The Union Budget 2025's focus on supporting lower and middle-income households could help revive private investment in the economy, according to a report by HDFC Bank.
The report highlighted that consumer demand has remained weak, affecting corporate sentiment, but the latest budget measures may provide the necessary push to stimulate economic growth. It said, "A push for the lower and middle-income households - where the propensity to consume is high -- could provide the much-needed sentiment boost to get the private investment cycle rolling." The report noted that capital expenditure (capex) generally has a stronger impact on economic growth compared to tax cuts. However, weak and fragmented consumer demand has been a key factor holding back private sector investments. By focusing on lower and middle-income households--who tend to spend more when given financial relief--the government aims to boost consumption, which in turn could encourage private companies to invest more in expanding their businesses. The report also added that the government is also continuing its focus on increasing capital expenditure, with efforts to bring states and the private sector on board. This, combined with an expected improvement in rural demand due to a strong agricultural output, is likely to support GDP growth. The report projects India's economic growth at 6.6 per cent for the financial year 2025-26 (FY26). One of the major highlights of Budget 2025 is the government's efforts to address weak consumer demand. The Finance Minister has rationalized income tax slabs across all income groups, along with making adjustments to tax deduction at source (TDS) and tax collected at source (TCS) limits. These measures are expected to increase disposable income, encouraging spending and savings, especially among lower- and middle-income families. These groups have been facing financial strain due to high food inflation and sluggish wage growth. The central government has set an expenditure target of Rs 50.7 lakh crore for FY26, reflecting a 7.4 per cent increase from the previous year. This marks a rise of Rs 3.5 lakh crore over the revised estimates for FY25. However, the report cautions that this increase should be seen in the context of slower spending in FY25, which led to a lower base for comparison. The report outlined that the budget's consumer-centric approach, combined with continued focus on infrastructure spending, aims to strengthen economic recovery and create a positive business environment that encourages private investments. (ANI)
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