Why Indian Corporates Want A Tax Cut For Middle Class From Nirmala Sitharaman This Year

Mohandas Pai, chairman of Aarin Capital and former CFO of Infosys, has requested finance minister Nirmala Sitharaman and Prime Minister Narendra Modi to give significant tax relief to middle-class taxpayers in the upcoming Budget 2025-26. In his post on social media platform X, Padma Shri awardee, Pai has shed light on the “great distress” faced largely due to increasing taxes and the high cost of living. 

“Very high growth in IT/CT collection for the third year. (It) will be higher than budget again. Time for @FinMinIndia @nsitharaman to give relief, simplify, and reduce taxes on long-suffering middle-class taxpayers...high EMI because of high vegetable prices...massive increase in school and college fees over last three years...,” said Pai in his post. His post has raised a bigger concern shared by India Inc. as it eyes relief to boost consumption slowdowns in the upcoming union budget. Pai’s request stems from the slowdown coupled with muted government spending seen by the corporate sector this year. According to a Bloomberg report, around 22 companies in the Nifty50 index witnessed a dip in profit estimates in Q2 FY25.

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His post has raised a bigger concern shared by India Inc. as it eyes relief to boost consumption slowdowns in the upcoming union budget. Pai’s request stems from the slowdown coupled with muted government spending seen by the corporate sector this year. According to a Bloomberg report, around 22 companies in the Nifty50 index witnessed a dip in profit estimates in Q2 FY25. 

FMCG Players Struggle as Q2 Earnings Dip 

The earnings, particularly towards the second half of the year, of fast-moving consumer goods (FMCG) companies have highlighted the worry of India Inc. 

Hindustan Unilever (HUL) reported a 4 per cent decrease in its standalone net profit in Q2 FY25 to Rs 2,612 crore compared to Rs 2,717 crore in the same period a year ago.  

“We remain watchful of a gradual recovery in consumer demand while creating a sustained competitive advantage...,” said HUL’s CEO and Managing Director Rohit Jawa post results. 

Similarly, Nestle India too witnessed a marginal decrease of 0.94 per cent in its net profit to Rs 899.49 in Q2 FY25 from Rs 908.08 crore in Q2 FY24. Nestle India’s chairman and managing director Suresh Narayanan mentioned that 5 of the top 12 brands grew at double digit while the key brands felt the pressure due to softer consumer demand. 

Also Read: Lot Needs to be Done to Boost Consumption, Says Dixon Chairman Sunil Vachani 

“Despite a challenging external environment with muted consumer demand and high commodity prices...,” said Narayanan. 

FMCG Dabur India’s consolidated net profit too dipped 17 per cent to Rs 425 crore in Q2 FY25 compared to Rs 515 crore in Q2 FY24. 

The company said in a statement on January 3 that it is expected to record low single digits growth in its consolidated revenue for Q3 FY25.  

“In Q3, inflationary pressures were witnessed in some segments which were partially mitigated through tactical price increases and cost-efficiency initiatives...With improving macroeconomic indicators, we expect FMCG growth to revive and sequential improvement in demand going forward,” said the company in an exchange filing. 

Eyeing Consumption Boost 

With the consumption slowdown taking a toll on corporate sector earnings, India Inc is placing its bet on Nirmala Sitharaman’s 8th consecutive budget. 

Recently, at the Consumer Electronics and Appliances Manufacturers Association’s (CEAMA) 45th annual function, Dixon Technologies chairman Sunil Vachani, emphasised the need to boost consumption and suggested measures like GST reduction and tariff relaxation on components, particularly in the white goods segments. 

“A lot more needs to be done to boost consumption,” Dixon’s chairman said in a media interaction. 

Also Read: Changemakers 2024: Nirmala Sitharaman is Running an Economy Forged in Fire

According to a Reuters report, the government is considering cutting income tax for persons earning up to Rs 15 lakh per annum in the upcoming budget. 

Ahead of the budget presentation, the Reserve Bank of India (RBI) too, in its January Bulletin, highlighted the need to boost consumption, mainly in the urban areas. 

“One way to revive the animal spirits may be to provide a consumption boost...The middle class is pinning hopes on relief from food inflation and hence higher disposable incomes, especially the urban segment,” said RBI in the Bulletin. 

A similar suggestion has been made by the Confederation of Indian Industry (CII) to the finance ministry. The CII in its pre-budget expectation mentioned the need for the government to intervene to stimulate spending by lowering down marginal tax rates for personal income, particularly for those earning up to Rs 20 lakh per annum. 

“Domestic consumption has been critical to India’s growth story...Government interventions could focus on enhancing disposable incomes and stimulating spending to sustain economic momentum,” said Chandrajit Banerjee, Director General at CII.