Modi turns to India's vast middle class to revive growth in rough global year (updated)

Prestige Estates Projects

01/02/2025 05:39

* 
      India gives tax relief to boost spending power of middle
class
    

        * 
      Fiscal deficit for 2025-26 seen at 4.4% from 4.8% this
year
    

        * 
      Missions to boost farm productivity, manufacturing,
exports
    

        * 
      FDI limit in insurance sector raised to 100% from 74%
    

  
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    By Nikunj Ohri, Shivangi  Acharya and Sarita Chaganti Singh
       NEW DELHI, Feb 1 (Reuters) - India slashed personal tax
rates in its annual budget on Saturday, as the world's fifth
largest economy focuses on boosting domestic demand amid
uncertainty over the global economic outlook due to potential
new tariff barriers.
    The world's most populous country is expected to post its
slowest growth in four years next year amid frail urban demand
and weak private investment, while stubbornly high food
inflation has dented disposable incomes. 
    The government said people earning up to 1.28 million Indian
rupees ($14,800) per year will not have to pay any taxes,
raising its threshold from 700,000 rupees. It also lowered tax
rates for people earning above the new threshold.
    "The new structure will reduce taxes on middle class and
leave more money in their hands, boosting household consumption,
savings and investment," Finance Minister Nirmala Sitharaman
said in parliament.
        The move will result in an annual 1 trillion Indian
rupee ($11.6 billion) hit to Treasury revenues.  
  
        Measures to assist the poor, youth, farmers and women
were also included in the budget for 2025-26, Sitharaman said.
        Increasing living costs have weighed on the popularity
of Prime Minister Narendra Modi, with one survey showing more
Indians are becoming less hopeful about their quality of life.
    Per capital income is around $2,700 for India's population
of 1.4 billion, with about one-third considered middle class.
    The tax cut is "likely to spur consumer demand and savings
by the middle class that has faced challenges from elevated
inflation and lower income growth," Sakshi Gupta, economist at
HDFC Bank.
        The move led to a rally in consumer stocks such as
Maruti Suzuki  MRTI.NS , Godrej Consumer Products  GOCP.NS  and 
Prestige Estates  PREG.NS , which jumped by 4% to 8%. 
    To balance the revenue lost, the government has budgeted for
a modest increase in capital spending this year, which will rise
to 11.21 trillion rupees in 2025-26 compared to a lowered 10.18
trillion in the current year.
    The modest infrastructure spending increase disappointed
investors in the sector and stocks of firms including Larsen &
Toubro  LART.NS , NBCC  NBCC.NS , IRB Infra  IRBI.NS  and KEC
International < KECL.NS> were down between 1% and 6%. 
    The government expects to improve its finances, targeting a
fiscal deficit of 4.4% of GDP in 2025-26, down from a revised
4.8% of GDP in the current year.
    It will borrow 14.82 trillion Indian rupees via the bond
markets to fund this year's fiscal deficit.
    The government, however, refrained from pre-empting the
impact of potential tariffs from U.S. President Donald Trump on
India and focussed on lowering some input costs for industries
that have been raising output such as electronics and 
renewables. 
         
        FOCUS ON FARM, MANUFACTURING AND FINANCIAL SECTOR
        India has faced a bout of high food inflation over the
past year due to weather changes impacting output. 
    To boost productivity across the farm sector, the government
will launch a national mission to push high-yielding crops, with
a special focus on pulses and cotton production. 
    To help farmers, the limit for subsidised credit has been
raised to 500,000 Indian rupees ($5,778) from 300,000 rupees
earlier.
    The government will also launch missions to push
manufacturing and exports, Sitharaman said, without going into
details.
    India has long aimed to boost the share of manufacturing and
exports in its economy but has had little success. The share of
manufacturing in the economy has remained close to 17%, short of
its long-standing goal of 25%.
    To deepen the penetration of insurance in the economy, the
foreign direct investment limit on insurance was raised to 100%
from 74% currently.
($1 = 86.5360 Indian rupees)

    <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
India projects 6.3-6.8% growth in 2025-26    https://reut.rs/4goqbKQ
India's 2025-26 budget snapshot    https://reut.rs/42GpnOj
    ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
 (Reporting by Shivangi Acharya and Nikunj Ohri in New Delhi;
Writing by Ira Dugal and Aftab Ahmed; Editing by Lincoln Feast)
 ((mailto:Aftab.Ahmed@thomsonreuters.com; +91 99109 33884;))