Banking on Demand-Led Growth

The growth rate of the economy has been slowing, and consumption is also growing at a slower pace. However, there are some more issues, which we have to consider when we examine the Budget for financial year 2026.

- M SURESH BABU

First, apart from the growth slowdown, it comes at a time when gross savings in the economy are not increasing. Second, as consumption is not growing, corporate earnings are not growing at a fast pace, which has implications for investments. Third, household debt is increasing, not at a startling pace compared to some other emerging economies, but it will have an impact on aggregate demand in the economy.

Against this backdrop, the Budget is presented with an overall strategy to increase demand in the economy. Thus, the question is, will the Budget make people consume more and revive the economy?

Demand Revival Vital

It is vital to have a demand revival at this stage for the economy to move to a higher growth trajectory. The Budget uses a combination of strategies for this. First, it provides tax relief measures to certain sections of the population who have some spending capacity. These segments had a reduction in their disposable incomes due to creeping inflationary pressures.