With income tax reforms at the forefront, rising disposable income is expected to fuel a much-needed boost in consumption
The long-awaited income tax relief for the middle class has arrived, with income up to Rs 12 lakh now tax-free. Finance Minister Nirmala Sitharaman’s move is expected to drive consumption and unlock vast growth potential for the fast-moving consumer goods (FMCG) sector, which has been fighting the slowdown in urban consumption.
As consumer spending plays a pivotal role in retail growth, and with policies aimed at increasing disposable income and supporting the middle class, the experts have reacted positively to a boost in demand. Hit by a slowdown in urban consumption in the first half of the current year due to inflation concerns, the new tax regime is expected to revive the sector.
Much-awaited Tax Reliefs
After several decades, India’s peak income tax rate has been reduced to 30 percent from 35 percent earlier. FM said that there will be no income tax payable upto income of Rs 12 lakh (i.e. average income of Rs 1 lakh per month other than special rate income such as capital gains) under the new regime. This limit will be Rs 12.75 lakh for salaried tax payers, due to standard deduction of Rs 75,000.
Higher Consumption To Drive FMCG Sector
The economic survey, released on 31 January 2025, highlighted that indicators of urban demand have presented mixed trends and FMCG sales in urban areas have recorded a moderate growth in the first half of the current fiscal (H1FY25). The experts believe that focus on boosting infrastructure, logistics, and digital payments will streamline retail operations, making it easier for businesses to expand their reach, especially in Tier 2 and Tier 3 cities.
“The Union Budget 2025 takes a balanced approach by strengthening rural infrastructure, manufacturing, and consumer spending—three critical pillars for the FMCG sector. Investments in rural development and job creation will boost economic activity and drive higher consumption, opening new opportunities for market expansion,” highlighted Aasif Malbari, Chief Financial Officer – Godrej Consumer Products.
With increased disposable income, tax reforms, and a focus on ease of business, the experts stated that the Indian retail landscape presents immense opportunities. The government’s focus on job creation and boosting consumer spending has set a foundation for long-term retail growth and economic progress.
“The Middle Class gets a significant tax relief after a decade to boost consumption and eventually revive demand is the Brahmastra FM has fired. Kudos to her for doing so while remaining fiscally responsible by targeting a fiscal deficit of 4.4 per cent,” stated GP Hinduja, Chairman, Hinduja Group.
Rising Disposable Incomes
With the newly introduced tax reliefs, the biggest aspect that is expected to drive the economy is the increase in disposable incomes. The experts believe that as people will now have more money in their pockets, they will look to spend it to meet not only their consumption need but also their luxury needs.
“The government’s continued push for domestic manufacturing under ‘Make in India’ and support for MSMEs will strengthen the foundation of homegrown brands, fostering self-reliance and global competitiveness…With policies aimed at increasing disposable income and supporting the middle class, we expect a positive impact on demand,” highlighted Raj Kumar Jain, Managing Director, Bonjour.
Growth Amid Inflation Concerns
One of the key factors that led to a slowdown in consumption levels was the uptick in the levels of inflation, especially food inflation, which kept Indian consumers cautious as they made their purchase decisions. After its descent to sub-target levels in July and August 2024, consumer price index (CPI) inflation changed course on the back of a rise in food prices and rose beyond the upper tolerance level to 6.2 per cent in October 2024.
Subsequently, with some softening of food prices and favourable base effect, CPI inflation came down to 5.5 per cent in November 2024. Meanwhile, core CPI inflation rose by 64 basis points (bps) since May 2024 to 3.7 per cent in November 2024, as per the Reserve Bank of India’s (RBI) Financial Stability Report In December 2024.
Boost To Apparel, Textile Sector
With a clear emphasis on sectors like agriculture, rural economy, and renewable energy, the union budget 2025 addressed the issues in the apparel as well as textile sector. The Centre introduced ‘Mission for Cotton Productivity’. This five-year mission will facilitate significant improvements in productivity and sustainability of cotton farming, and promote extra-long staple cotton varieties. The FM stated that best of science and technology support will be provided to farmers.
“The mission for cotton productivity initiative will empower cotton farmers to improve production, sustainably. Further, special emphasis on boosting domestic production of textiles through different initiatives is a significant step towards strengthening Make in India mission. We are confident that these new initiatives from Fiscal Budget 2025-26 coupled with existing programs like Pradhan Mantri Vishwakarma Scheme will empower both the artisans and the textile industry at large. Sumit Arora, President- Apparel, Fabindia.
Focus On Gig Workers, Digital Commerce
Highlighting that gig workers of online platforms provide great dynamism to the new-age services economy. The FM stated that the Centre will arrange for their identity cards and registration on the E-shram portal. This along with a push for digital commerce received positive feedbacks from the experts.
“The introduction of social security measures for gig workers is a key highlight, acknowledging their valuable contribution to the economy. It’s a much-needed upliftment and a step towards recognising gig workers’ contribution in India’s economy and youth employment,” highlighted Aadit Palicha, Co-Founder and Chief Executive Officer (CEO), Zepto.
Sitharaman stated that they will be provided healthcare under PM Jan Arogya Yojana. This measure is likely to assist nearly one crore gig-workers. Experts believe that this step will be beneficial for the ecommerce sector, which relies on gig workers for meeting various needs.
“The government’s move to facilitate registration on e-Shram portal for gig workers, providing insurance coverage for nearly one crore workers is a crucial step toward formalising and securing the gig economy. This will directly benefit the ecommerce sector, which depends on gig workers for logistics, last-mile delivery, and customer engagement, ensuring greater stability and efficiency,” highlighted Shashwat Swaroop, Founder, Marmeto.
The experts stated that increasing the investment and turnover limits for MSME classification is a game-changer that will drive scale, innovation, and job creation.
“We welcome the Union Budget 2025-26 for its strong push for MSME growth, digital commerce, and boosting consumption for mass Indians. The big boost for sectors such as toys, footwear and many others will lead to improved domestic capabilities in manufacturing and exports,” stated Dhiresh Bansal, Chief Financial Officer at Meesho.
With the reforms in the income tax expected to pave the way for the revival on the consumption front, the boost in disposable incomes will aid the growth of the economy as a whole. As India prepares to propel itself on the growth trajectory to realise the goal of becoming a ‘viksit’ nation by 2047, the realignment of consumption story becomes crucial.
