BUDGET'S CONSUMPTION PIVOT

The Union Budget FY26 has set the stage for a transition from state-driven infrastructure spending to a model where rising household consumption would kick-start private capex cycle

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For the last many years, the Union government has been banking on India Inc and its own capital expenditure to lift economic growth to over 8% to realize its vision of Viksit Bharat.

In 2019, the government lowered taxes on corporates, forgoing a couple of lakhs of crores, hoping it would kick-start a big private capex cycle, but with no success.

Post-pandemic, the government spent upwards of ₹10 lakh crore a year on building a maze of roads and infrastructure across the country expecting it to crowd in private investments. However, this has also not yielded the desired results.

While corporate balance sheets have improved, thanks to corporate tax cuts, businesses have been hesitant to expand capacities due to subdued domestic demand and global trade uncertainties.

THE BUDGET MEASURES

However, this year, as growth dropped to below 6% and US President Donald Trump threatened a global tariff war, Finance Minister Nirmala Sitharaman made a pivotal bet on Indian consumers to put growth back on track.

In the Union Budget 2025-26, she announced a big bonanza of income tax relief aggregating over ₹1 lakh crore for the middle class, hoping that it would incentivize private consumption and revive demand, thereby encouraging businesses to invest in expansion and job creation.

The Union Budget 2025-26 rationalized income tax slabs and increased thresholds for Tax Deducted at Source (TDS) and Tax Collected at Source (TCS), effectively raising household disposable income, hoping it would create a virtuous cycle of higher consumption, investment, and employment.

Notable changes include no tax on income of up to ₹12 lakh, easing the burden across income levels, easing senior citizens’ interest income limit from ₹50,000 to ₹1 lakh, increasing the TDS threshold on house rent from ₹2.4 lakh to ₹6 lakh, higher TCS limits for remittances, benefiting families belonging to the middle-income segment.