Budget 2025-26 has gone all out to provide stimulus to growth via the lever of consumption by reducing personal income taxes
Download ReportQuantEco Research || India Macro Tidings - Budget’s consumption bonanza: Impact assessment
With a fiscal stimulus of Rs 1 lakh cr, benefitting close to 3 cr middle income tax payers, we estimate that the income tax cut can boost PFCE growth by 60 bps and GDP growth by 30 bps in FY26. It can have a larger multiplier impact – by incentivizing production and investment over the medium term. Budget’s consumption stimulus needs to be seen in conjunction with – direct income transfer at the state level that will reach full scale in FY26 and the impending 8th Pay Commission that will reset salaries of Government employees Jan-26 onwards. As such, the force of this cumulative consumption impact may well last beyond FY26. Further, in contrast to popular belief, the tax cuts are likely to carry negligible impact on inflation, we argue.