Will Budget 2024 spur consumption?

Budget 2024 has clearly recognised the need to make the average Indian youth more employable by announcing an outlay of ₹2 lakh crore for skilling. Though India produces a large number of graduates every year, there is a dearth of graduates with new-age skill sets. Will these job creation initiatives as well as the income tax deductions spur consumption? The jury is divided. While analysts unanimously agree that these are long-term strategies to build a stronger economy, a section of them are not too sure if they would move the consumption needle in the short-term. “These initiatives were definitely needed, but they are not sufficient to spur demand in the immediate future,” says Angshuman Bhattacharya, partner and national leader (consumer product and retail sector), EY India.

“The biggest concern is the consumption slowdown in the last 4-5 quarters. These initiatives will not spur short-term revival of consumption. Even the tax deductions will not significantly add money into people’s pockets,” Bhattacharya further adds. The standard deduction under the new tax regime has been raised from ₹50,000 to ₹75,000, along with revised tax slabs that offer reduced tax rates for income up to ₹15 lakh (which would amount to savings of ₹1,500 per month).

“There is typically a lag between policy announcement and consumption going up. Rural areas are already showing growing shoots now, so these policy changes in the medium term will boost consumption,” says Anand Ramanathan, partner (consumer products and retail), Deloitte India. Ramanathan calls this an employment generation budget. “More employment means more income and more consumption,” he explains.

Ramanathan also hopes that the outlays in tourism, infrastructure and housing would have a multiplier effect as they would create more jobs and hence lead to higher consumption. FMCG majors such as Marico and Parle Products are optimistic about a spur in consumption. “The budget’s focus on incentivising the new tax regime, with higher deductions for employer contributions to NPS accounts (increased from 10% to 14%), underscores a deliberate push towards greater consumer spending. This move is expected to influence consumer behaviour, making spending more attractive compared to saving. The anticipated increase in disposable income is poised to drive higher consumption in the FMCG sector, as consumers are likely to allocate a portion of their increased earnings towards everyday goods and services,” says Mayank Shah, vice-president, Parle Products.

The outlay of ₹2.66 lakh crore for rural development and ₹1.52 lakh crore for agriculture and allied sectors will help in stabilising rural economies and ensuring farmers have access to essential resources, says Saugata Gupta, MD, Marico. “The Budget highlighted the need for self-sufficiency in pulses and oilseeds such as mustard, groundnuts, sesame, soyabean, and sunflowers, working towards strengthening their production, storage and marketing. To add this are several measures geared towards the upskilling of the youth, encouragement to employers and first-time employees. These will help in job creation for the next generation….Further, taking a concrete step forward towards reforming the tax code, the proposed deductions for salaried individuals and pensioners shows the government’s clear focus on stimulating disposable incomes of the middle class, thereby driving consumption,” adds Gupta.