Budget Expectations 2025: Deloitte expects Nirmala Sitharaman to make these changes to boost India's retail consumption
Union Budget Expectations 2025: Deloitte expects the Finance Ministry to relax the basic income tax exemption limit under the old regime from Rs 2.5 lakh to Rs 3.5 lakh and raise the standard deduction under the new tax regime from Rs 50,000 to Rs 75,000.
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Budget Expectations 2025: In its budget-related expectation and recommendation report, financial services company Deloitte raised certain concerns about a slowdown in India's FMCG sector.
It says that the urban Fast-Moving Consumer Goods (FMCG) sector, a major contributor to India’s consumption story, is experiencing a slowdown, particularly in massmarket segments.
The firm says that the last fiscal quarter saw a noticeable decline in sales volume growth in urban areas, with the massmarket segment dropping by over 10 per cent in key metropolitan cities.
It further says that recently, a major (FMCG) company's financial disclosures highlighted that the average consumption among lower-income urban consumers fell by 15 per cent due to elevated food inflation, which remains above the RBI’s comfort level of 6.4 per cent.
Rural market resilience
Speaking about rural markets, the firm says that it comprises 35 per cent of India’s FMCG sales which are rebounding with a 6 per cent year-on-year growth in volume sales.
The increase in rural consumption is also reflected in a 3 per cent rise in tractor sales and a 10 per cent uptick in three-wheeler sales, indicating a broader rural economic revival.
Factors such as favourable monsoon patterns and increased government spending on rural employment schemes, which reached Rs 1.80 lakh crore under MGNREGA in 2024–257 have contributed to this growth.
Continued investments in rural infrastructure, digital penetration and affordable product offerings can amplify these gains.
Policymakers must allocate significant budget resources to sustain this momentum, says Deloitte.
Challenges posed by quick commerce
The Deloitte report says that the rise of quick commerce platforms at a 25 per cent CAGR is altering traditional retail dynamics.
Reports indicate that Q-commerce platforms such as Zepto and Blinkit captured 8 per cent of the urban grocery market share in 2023, up from 3 per cent in 2021, says Deloitte.
Tier 2 cities now contribute 30 per cent of these platforms’ overall sales, signalling their broader reach, says report
Expectation 1
Introduce higher income tax exemptions to boost disposable income
Specific measure
Relax the basic income tax exemption limit under the old regime from Rs 2.5 lakh to Rs 3.5 lakh and raise the standard deduction under the new tax regime from Rs 50,000 to Rs 75,000, expects Deloitte
Expected outcome
Deloitte says that a 5–7 per cent increase in disposable income for middle-income households could lead to a 6 per cent rise in consumer spending on FMCG and other essential goods.
This is expected to contribute to a 0.7 per cent growth in GDP directly.
Rationale
With consumption accounting for over 60 per cent of India's GDP, boosting disposable income is critical to reviving demand.
The urban middle class, a significant portion of the consumer goods market, has shown a cautious spending pattern due to stagnant income growth and high inflation.
Tax relief will alleviate financial pressure and stimulate spending says the financial services company.
Expectation 2
Reduce GST rates on mass-consumption FMCG products
Specific measure
Deloitte expects the finance minister to lower GST rates on mass-consumption FMCG products, such as personal care and packaged foods, from 18 per cent to 12 per cent.
Expected outcome
A projected 8 per cent increase in volume sales of mass-market FMCG products, leading to higher tax collections from increased consumption and a 0.5 per cent boost in GDP.
Rationale
Price sensitivity among lower-income groups has led to a decline in mass-segment consumption.
By reducing GST, the government can offset this decline, support small-scale FMCG manufacturers and enhance affordability for essential goods, aligning with its inclusive growth agenda.
Expectation 3
Provide targeted tax incentives for rural market development and innovation
Specific measure
Allocate Rs 10,000 crore FMCG Rural Growth Fund to strengthen rural distribution networks and offer tax rebates for companies investing in affordable rural product lines.
Introduce a 150 per cent weighted tax deduction on R&D expenses for FMCG companies innovating in sustainable packaging and health-focused products.
Expected outcome
A 10 per cent growth in rural FMCG sales, contributing an additional Rs 50,000 crore in annual revenue for the industry, says Deloitte.
Enhanced R&D incentives would promote innovation, creating premium and sustainable product categories with higher profit margins.
Rationale
Rural India accounts for over 35 per cent of FMCG consumption and is poised for significant growth if supported by better distribution infrastructure and affordable products.
Additionally, providing incentives for R&D aligns with global trends focusing on sustainable and health-oriented goods, positioning India as a leader in innovative FMCG solutions.
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