Union Budget Deconstructed: Consumption takes center stage

The Finance Minister has surprised again, this time very positively, by giving us what we most needed at this stage – a massive boost to consumption. The proposed changes under the New Tax Regime will result in NIL taxes for middle class tax payers with an annual income of up to INR 12 lakhs. This tax saving will not only spur consumption but is significant enough to encourage more investments as well. A huge positive for consumption and investment on the whole!

Highlights

• Nominal GDP estimate for FY25 has been revised downward implying a growth rate of 9.7% for FY25 compared to 10.5% estimated earlier.
• Tax saving due to slab changes and reduction in tax rates is a huge positive for both consumption and investment. Since the beneficiaries would either consume or invest, the companies in the space of consumer goods, asset managers, capital market intermediaries and banks would benefit.
• Budget bodes well for both Fixed Income and Equity Markets. Fixed Income – due to the fiscal prudence and intent towards consolidation, and for Equity – due to the clear impetus given to consumption.
• As expected, Capital Expenditure target has been revised downward for the current year, and growth for next year is in line with Nominal GDP.