New Delhi:
As the Indian government prepares to present the Union Budget 2025-26 on February 1, the Confederation of Indian Industry (CII) has outlined a series of bold measures aimed at boosting consumption, particularly among lower-income groups, to sustain economic momentum.
Reducing Excise Duty on Fuel
At the forefront of CII’s proposals is the urgent need to reduce the central excise duty on fuel. According to CII, fuel prices play a significant role in driving inflation, constituting a substantial portion of the overall household consumption basket. The central excise duty alone accounts for approximately 21% of the retail price for petrol and 18% for diesel. Despite a 40% decrease in global crude prices since May 2022, these duties have remained unchanged, exacerbating inflationary pressures.
“Lowering excise duty on fuel would help reduce overall inflation and increase disposable incomes,” stated Chandrajit Banerjee, Director General of CII. This move is seen as crucial in enhancing the purchasing power of consumers, especially in low-income households, where fuel costs significantly impact their budget.
Addressing Tax Disparities
CII has also highlighted the disparity between individual and corporate tax rates. The highest marginal personal income tax rate stands at 42.74%, while the corporate tax rate is at 25.17%. This gap is particularly problematic in the current inflationary environment, where the buying power of lower- and middle-income earners has been eroded. The industry body recommends reducing marginal tax rates for personal income up to ₹20 lakh per annum to stimulate consumption, drive growth, and potentially increase tax revenue.
Enhancing Welfare Schemes
To further boost consumption, especially in rural areas, CII has suggested several enhancements to key welfare schemes. One of the key recommendations is to increase the daily minimum wage under the Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS) from ₹267 to ₹375, as proposed by the 2017 Expert Committee on Fixing National Minimum Wage. This increase would require an additional expenditure of ₹42,000 crore annually.
Additionally, CII has urged the government to raise the annual payout under the PM-KISAN scheme from ₹6,000 to ₹8,000, benefiting an estimated 10 crore farmers at an additional cost of ₹20,000 crore. The industry body also advocates for revising the unit costs under the Pradhan Mantri Awas Yojana (PMAY) schemes, both for rural and urban areas, which have not been updated since the schemes’ inception.
Consumption Vouchers and Bank Deposits
CII has proposed the introduction of consumption vouchers targeted at low-income groups to stimulate demand for specific goods and services. These vouchers could be designed to be spent on designated items over a specified period, such as 6-8 months, and could be issued to Jan-Dhan account holders who are not beneficiaries of other welfare schemes.
To address the decline in household savings, CII suggests reducing tax rates on interest income from bank deposits and lowering the lock-in period for fixed deposits with tax benefits from five years to three years. This move aims to reverse the trend of declining bank deposits, which have dropped from 56.4% of financial assets in FY20 to 45.2% in FY24.
Fiscal Prudence and Long-Term Planning
While the proposed measures involve additional expenditure, CII has emphasized the need for fiscal prudence. The industry body recommends sticking to the fiscal deficit target of 4.9% of GDP for FY25 and 4.5% for FY26. CII also suggests instituting Fiscal Stability Reporting to forecast potential economic headwinds and assess their impact on the fiscal path, ensuring long-term fiscal sustainability.
“Fiscal management has maintained the perfect balance between the fiscal deficit and fiscal support to growth, providing macroeconomic stability to the economy and helping build resilience in an environment of great global economic uncertainty,” said Banerjee.
As India prepares for the Union Budget 2025-26, the CII’s proposals reflect a comprehensive approach to addressing the current economic challenges. By reducing excise duties on fuel, rationalizing tax rates, enhancing welfare schemes, and introducing consumption vouchers, the government can significantly boost consumption, drive economic growth, and ensure a more inclusive recovery.
