Union Budget 2025: Focus on Middle class via tax rationalization analysis by Ms. Namrata Mittal, Chief Economist, SBI Mutual Fund
Below The Union Budget 2025: Focus on Middle class via tax rationalization analysis by Ms. Namrata Mittal, Chief Economist, SBI Mutual Fund
Backdrop ahead of 2025 Union Budget
Growth needs policy support
Household spending is the weakest link in overall growth
But for the income tax collection, weak growth has dented the tax buoyancy for all other tax items
• Addressing a cyclical slowdown early on should be the top priority in this year’s budget.
• Over the past two years, monetary policy has focused primarily on inflation control and macro-prudential measures, while fiscal goals were hinged at consolidation and tax buoyancy. Growth has taken a backseat.
• Growth needs policy support.
• Additionally, 1H FY25 highlights that private sector is not fully ready to take growth baton and the moderation in growth negatively impacts fiscal dynamics through reduced tax revenues.
• Consumption, in particular, has emerged as the most vulnerable area, which requires immediate attention.
India’s middle class need better disposable income
Plethora of government schemes for low-income households
• Low-income sentiments are improving owing to combined effect of a) stabilizing price pressures b) modest positive rub off from welfare schemes c) some positive flow of income owing to pick-up in construction and infrastructure activities.
• Affluent class has gained from the wealth effect from equity market gains.
• The middle-income class (forms ~1/3rd of total Indian households) is most affected.
Upper income supported via wealth effect
Equity market gains post COVID has led the net financial assets in India to run at all time high
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