Can consumption reinforcement encourage Indian economy?

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In one two blows, Indian Finance Minister Nirmal Sitharaman Removed tax for people With annual earnings up to 1.2 million Indian rupees ($ 13,694), compared to the previous threshold of 700,000 Indian Rupees.

A measure is expected to benefit 10 million more taxpayers with savings that can be directed toward investing or buying goods and services. That means a 1-trillion-trillion deficiency in annual treasury revenues.

Consumption levels in India have almost In the third to 200 trillion Indian holes in the last decade, with the growth of the country’s population to 294.3 million households. Segment now makes around 60% of Indian economy – which makes him the main driver of growth.

The inflamed Chachra, the main Indian economist in Morgan Stanley, describes consumption as “one of the main bases of the Indian economy.”

“It cannot be denied that she plays an important role in providing stability to the ultimate demand,” she told CNBC India.

Cracks in consumption

However, government laser focus to increase consumption – because of the development of infrastructure, to which it has historically concentrated – comes in response to deep cracks in consumer consumer consumer.

With the exception of the luxury market and segments serving rural population, the consumption level in sectors decreased as residents of the Indian city – who hit 522.9 million From 2023 – Reduce to consumption.

Among the factors that are encouraged these are increased levels of inflation and standing salary, and recent report From the Kantar market research, he emphasizes.

From a supermarket chain to a car manufacturer, companies feel a pinch. Several of the largest Indian corporations, such as Hindustan Unilever,, Maruti Suzuki and Reliance retail – Retail hand Reliance industries – He reported about slowing down revenues and weaker earnings last year, due to the decay of urban demand.

Fasting lines in household consumption also badly represent the foreign companies that fought for a proportion in such a hipped growth in India.

Cyclic slowing

Indian dormant in consumer consumer consumer is partly owed to “cyclic slowdown of consumption” because households have been reduced to costs to save higher or service loans during the post-Kosid 19 Pandemic consumption, says Dhiraj Nim, a foreign currency strategist and economist in Anz Bank.

“Of course, consumption will be weaker in this part of the cycle. So, we don’t have to worry too much because there are policy levers to get rid of this, such as reducing rates by RBI,” he told CNBC within India India India CNBC -a. The Indian Central Bank is Is expected to reduce interest rates February 7, at his first meeting of politics with Sanja Malhotra as a governor.

In accordance with this background, it says that the government move reduces tax “will not turn into a significant impetus to GDP growth.”

Household border preference to consumption (MPC) is 0.6 to 0.7, which means that their expenditures will increase only by 600-700 billion of Indian rupees, despite the 1 trillion of the Rupei Indian tax concessions, they estimate. MPC records an individual’s willingness to spend, for every extra dollar of revenue. Reading of 0.6 or 0.7 implies that only 60% -70% will be consumed per dollar.

While reducing the ratio of fiscal deficit, this tax relief will also result in the withdrawal of government routine expenditures by 0.4 percentage points of GDP, “completely compensating for any increase from the tax relief,” he said.

For it, it would be more effective approach to provide a “widespread economy relief”, say, reducing fuel prices or adopting measures that reduce inflation and at the same time increase revenues. Such measures, he adds, will support the higher expenses that consumers fight with over the revenue level.

Is there enough consumption reinforcement?

The whole size of contributions for consumption of Indian GDP is enough to attract government attention. However, with the real growth of India GDP Is expected to hit a four -year -old low of 6.4% In the current fiscal year that ended in March, experts invite other measures to slow down.

Reference to economic policies in other countries like China, Chachra Morgan Stanley noted that an increase in the Government’s capital expenditures (Capex) – along with consumption – could stimulate the growth of a younger generation. This would include investment in aspects such as job creation or city development, which would use growing educational and aspiration millennial population of India.

“The invasion growth of GDP from investment in Capex is more than for consumption. When Capex raises and creates jobs, it will also increase revenue levels. This will ensure that consumption growth has also been held,” Chachra explained.

Over 3% GDP It was assigned to Capex for the Indian financial year starting at April. The proposed initiatives include the impetus for direct foreign investments and the Fund aimed at initiatives for infrastructure and remodeling in cities, which the recent budget included.

Hope is now that these initiatives are acting in tandem at job creation, in the end, improveing ​​productivity and salaries. If it is well done, this long process could encourage urban consumption and stimulate the necessary economic growth.

Spare Bank India is likely to reduce interest rates. Economists expect Indian Central Bank announced a 25 -base cut to his rates of repo during a meeting of politics on Friday. If the bank makes a lower rate, it would be the first lining in almost five years. Investors will also review the Governor’s statements RBI -Sanja Sanay Malhotra, which Took a role in Decemberevaluate the direction of the bank’s monetary policy.

The Bharatiya Jadana party is expected to win the Delhi Assembly elections, exhibit surveys show. If India is Prime Minister Narendra Modi BJP forms a government In the capital of the state, this would be the first time the party has been overcome in 27 years. The Aam Aadmi party rejected output surveys, questioning their accuracy.

The Indian budget gives priority to reduce the budget deficit. Indian government aiming at a Fiscal deficit of 4.4% gross domestic product For the fiscal year 2025 to 2026, the Minister of Finance Nirmala Sitharaman announced on Saturday. This goal was reduced by 4.8% of the deficit determined in the current year is a top of over 9% in the fiscal year 2020-2021. Going to GDP debt from GDP deficiency as a metric in the next fiscal year, the Government also announced that it plans to reduce debt level to 50% of GDP by March 31, 2031.

US President Donald Trump invited Indian Prime Minister Narendra Modi for an official visit. The White House announced the call on Monday, with a visit scheduled for week 10. FebruaryAfter now deported the illegal Indian migrants on the same day back to the ground. On January 27, fashion had a call with Trump, during which leaders discussed bilateral relationships and trade relations. India also wants to avoid US tariffs that Trump has so far imposed on Mexico, Canada and China.

Volkswagen sued the Indian government for its $ 1.4 billion tax demand. In September, India has issued a $ 1.4 billion tax notification for Volkswagensaying that the German car manufacturer paid a lower duty than 5-15% wrong classifying the imports of car components as “individual parts” from separate shipments, not “completely demolished units”, which would attract a 30-35% levy levy. Volkswagen said in his submission that Reuters was rethinking that a tax dispute could endanger his investment of $ 1.5 billion in India.

The Indian shares have been traded mixed in the past week, after showing signs of transfer a week before. AND NIFTY 50 The index closed to 23,508.40 points in the week, which ended on January 31, which is 1.8% increase compared to the previous week.

The reference yield of 10-year Indian government bonds marked a little to 6.78%.

On CNBC TV this week, Anand Gupta, a leading portfolio manager at Allianz Global, said Global Geopolitics “Game in favor of India”. at least exposed to the risks of a trade war caused by Trump’s tariffs. Accordingly, Gupta quoted growth in the electronics and movement sector from China during Trump’s first term.

In the meantime, the head of HSBC India Economist Pranil Bhandari said that the Indian government “tries to do a lot of things” with its budget 2025, namely “demolish a fiscal deficit, give great consumption and retain your thrust to Capex.” must give “in these ambitious goals, Bhandari said, adding that if the New Delhi administration wants to achieve its deficit goal, Cannot give a great impetus to the economy.