High hopes for tax cuts as FM Sitharaman presents record 8th budget

A cut or tweak in income tax rates/slabs to ease the burden of middle class struggling with high prices and stagnant wage growth is widely expected in Finance Minister Nirmala Sitharaman's record setting eighth consecutive Budget.

The Budget for the fiscal year starting April 1 is expected to contain measures to shore up weakening economic growth while being fiscally prudent. It is likely to focus on steps to boost consumption while sticking to the roadmap of narrowing the fiscal deficit.

Expectations of relief on income tax, particularly for lower middle class, is high after Prime Minister Narendra Modi invoked goddess of wealth for elevating poor and middle class.

"I pray to Goddess Lakshmi that the poor and the middle-class sections in the country are blessed by her," Modi said on Friday while speaking to reporters outside Parliament before the start of the Budget session.

His government's first full-year budget in the third term will be presented against the backdrop of geopolitical uncertainties and an economic growth rate slowing to four year low, with new US President Donald Trump threatening tariffs against countries like India.

Analysts and experts expect some tax rationalization, export push, better implementation of capital spending plans and clear roadmap on structural reforms. They also see some expansion in the production-linked incentives, and increased allocation to some welfare schemes while continuing focus on infrastructure creation/upgrade.

Also, tariff cuts to encourage local manufacturing are expected.

Increased allocations to boost job creation and skills, lower customs duties on intermediaries and increase in agriculture investments are also high on the list of expectations. Measures for accelerating domestic demand and private consumption are also expected.

They all agree on one thing - the government will continue on the path of fiscal consolidation, with a projected fiscal deficit of 4.5% of GDP for FY26 (April 2025 to March 2026) against 4.8% in the current fiscal ending March 31.

Rumki Majumdar, Economist, Deloitte India, said the first quarter data points to a notable increase in private consumption and a modest improvement in investment activity. "We expect these two to be the fundamental growth pillars as global uncertainties weigh on net exports."

"With the conclusion of the Indian elections, we anticipate that government spending will pick up, supporting growth in the coming quarters of FY2025," she said, adding the government is likely to continue to prioritize and enhance efforts towards skill development and employment generation.

Also, the focus may be on long-term solutions aimed at strengthening the agricultural value chain, incentivizing production and addressing structural supply-side issues that add to the delivery cost to address sticky inflation.

"Following the US elections, the risk of volatility in global trade has increased, with potential measures, such as higher import tariffs and tax cuts to promote manufacturing in the US," she said, adding that the government may look to implement a range of measures to enhance the competitiveness of Indian products on the global stage.

These may include tariff rationalization, duty exemptions and remission schemes, which would help lower the cost of Indian exports. Additionally, the government is likely to focus on simplifying export compliance procedures to reduce barriers and enhance exporters' efficiency.

EY expects increasing capital expenditure growth by at least 20% to drive economic activity, particularly in sectors like manufacturing and infrastructure.

DK Srivastava, Chief Policy Advisor, EY India, said, "As we navigate a challenging economic landscape, the upcoming budget must balance fiscal prudence with growth-oriented measures. Increasing capital expenditure and putting more disposable income in the hands of consumers, particularly urban consumers, will be pivotal to uplifting growth in domestic demand".

While there may be challenges, such as global economic headwinds and pressure on the Indian rupee, some measures in the budget are seen to help India sustain its growth trajectory.

Revisiting tariff structures to support domestic manufacturing and reduce dependency on imports while helping manage exchange rate pressures are likely.

Government infrastructure spending has been crucial to India's strong growth in recent years, even though the Rs 11.11 lakh crore outlay for the current fiscal will likely fall short by one-fifth.

"We expect the central government to prioritize macro stability by sticking with the fiscal consolidation path and steer clear of populist measures," Radhika Rao, Senior Economist at DBS said.

This will help keep additional spending and incremental inflationary impact in check. Instead, moves might include fine-tuning existing measures and focus on medium-term demand boost.

This budget is also set against the backdrop of slower domestic consumption and activity, which is likely to be in focus in the announcements. Emphasis will be on employment and skilling with a focus on boosting incomes, support labor intensive sectors, draw in private sector players, and defend against a tougher geopolitical environment.

(PTI)