How Bonanza for Middle Class Can Help India's Corporate Sector

India Inc has welcomed Finance Minister Nirmala Sitharaman’s Budget, as it addresses one of their biggest concerns—consumption. The decision to raise the personal income tax threshold to Rs 12 lakh from the earlier Rs 7 lakh has become a key highlight of Budget 2025-26. 

“This budget would kickstart a virtuous cycle of consumption-led growth. The reduction in personal income tax is one of the high points of the budget, which would give a huge consumption boost,” said Sanjiv Puri, President, Confederation of Indian Industry. 

His colleague CII Director General Chandrajit Banerjee noted that consumption is the largest constituent of India’s GDP, at around 56%, and has seen some sluggishness. These measures will therefore provide a direct boost to growth.

What’s in the Budget to Boost Consumption? 

During her announcement, the Finance Minister said raising the income tax rebate to Rs 12 lakh under the new regime will significantly benefit salaried taxpayers, who will effectively have an exemption of Rs 12.75 lakh due to the standard deduction. 

She also noted that the revised tax slabs and rates will provide significant relief. Taxpayers earning Rs 12 lakh will save Rs 80,000 in taxes, while those earning Rs 18 lakh and Rs 25 lakh will save Rs 70,000 and Rs 1.1 lakh, respectively, Nirmala Sitharaman said in her speech.

Further, the minister announced a rationalisation of TDS and TCS rules. For instance, the TDS exemption limit on senior citizens’ interest income has been doubled to Rs 1 lakh, while the TDS threshold on rental income has been raised from Rs 2.4 lakh to Rs 6 lakh. 

Additionally, the government has given a boost to homeownership by allowing taxpayers to claim exemptions on two self-occupied properties, up from the previous limit of one property. 

“The budget aims to balance growth needs while providing tax relief to the middle class and maintaining fiscal discipline. Around 85% of Indians fall within the Rs 12 lakh income bracket,” said Surjitt Singh Arora, Portfolio Manager - PMS, PGIM India AMC.  He further noted that the move could boost consumption in FMCG, value retail, and the auto sector.

For corporate India, a consumption slowdown has been a key concern over the past year, as rising inflation and low wage growth forced many to cut down on discretionary spending. Earnings reports from FMCG and other consumer-facing companies in recent quarters have reflected this pressure, as has the Nifty India Consumption Index, which has consistently declined since September 2024. However, the index rose 3.14% during the special trading session on Saturday following the budget speech. 

Also Read: FM Enhances MSME Classification, Provides Fresh Rs 10,000 Crore for Startups

Lagging Consumption 

For corporate India, a consumption slowdown has been a major concern over the past year, as rising inflation and low wage growth forced many to cut back on discretionary spending. Earnings reports from FMCG and other consumer-facing companies in recent quarters have reflected this pressure, as has the Nifty India Consumption Index, which has consistently declined since September 2024. However, the index rose 3.14% during the special trading session on Saturday following the budget speech. 

According to a report by SBI Securities, the second quarter saw pressure on fast-moving consumer goods (FMCG) demand, which worsened in October and November 2024. 

"Economic challenges and cash flow constraints for retailers and wholesalers are hindering growth. Disappointingly, growth remained weak during the festive season when demand typically peaks," the brokerage said in its report on January 22. 

It also referred to Nielsen data, which showed that overall FMCG growth in Q2 FY25 stood at 4-5%, with volume growth at around 3% and price growth at just 1-2%. 

In the third quarter, recent earnings reports indicate that consumption concerns have worsened. Companies such as HUL, Dabur India, Colgate-Palmolive, and Emami India have reported slower sales growth. 

Whether the finance minister’s tax cuts will spur spending remains to be seen in the coming months. However, for now, corporate India across sectors is praising the budget. 

"We see multiple interventions in MSMEs and employment-intensive sectors, which would translate into additional job creation. Employment-intensive manufacturing sectors have received a big boost. The focus product scheme for footwear and leather is expected to create 22 lakh jobs," said CII President Sanjiv Puri. 

Aniruddha Naha, CIO Alternatives, PGIM India Alternatives, noted that the government’s decision to increase capital expenditure to Rs 11.20 lakh crore should have a positive impact on the investment cycle.