Budget 2025: Barclays Bats For Tax Cuts For Individuals To Boost Consumption

The government should use the Union Budget 2025 to stimulate the economy through an "effective" personal-income-tax cut, which Barclays India said on Thursday will improve consumption and demand.

The finance minister can boost consumption by tweaking the tax slabs further. This is unlikely to have a sizeable fiscal cost, according to Barclays India Chief Economist Aastha Gudwani.

"We think a boost to consumption is needed, especially with private investment also now awaiting the increase in demand growth," Gudwani said. However, she added that "improved tax buoyancy will likely make up for revenue foregone under this announcement".

Barclays expects Finance Minister Nirmala Sitharaman to announce changes to the new tax regime, making it lucrative for more and more taxpayers.

In the previous Budget, the government had increased the standard deduction for the salaried taxpayer to Rs 75,000, and the deduction on family pension for pensioners to Rs 25,000 under the new tax regime, which offers a lower rate of taxes.

In the new tax regime, annual income up to Rs 3 lakh is exempted. People with annual income of Rs 3-7 lakh, pay 5% tax, while for the Rs 7-10 lakh bracket, the outgo will be 10%.

For those earning Rs 10-12 lakh, the tax is 15%, while for Rs 12-15 lakh income, it is 20%, and those above Rs 15 lakh as annual income will pay 30% tax.

Among other measures that Barclays suggest include reducing excise duty on fuel. The move will boost disposable income and purchasing power. At the same time, it will contain inflation.

According to Barclays, the government's customs duty announcements will be crucial to understand its response to US President Donald Trump's new trade tariffs.

Barclays suggests that India should be prepared for slower global trade and a fragmented world order due to the uncertainty that Trump brings along in his second term.

"We thus expect multiple tweaks in customs duty structure, especially on items where dumping concerns from China are rising (eg., steel, glass, basic metals). We expect a modest increase in customs duty collections in FY25–26 Vs. FY24–25," Gudwani said.

It expects the government to overachieve the fiscal deficit target for the current fiscal by 20 basis points at 4.7% of the GDP and 2025–26 deficit to be pegged at 4.5% of the GDP or about Rs 16.3 lakh crore.

Barclays said it awaits the debt consolidation roadmap from FY26–27 onwards to see when the finance minister sees general government debt-to-GDP fall to the 60% target.

In the 2024-25 budget speech, the finance minister stated that from 2026–27 onwards, the endeavour of the fiscal policy would be to maintain the fiscal deficit in a way that the central government debt is on a declining path as a percentage of the GDP.

The fiscal rules envision general government debt to be 60% of the GDP with 2:1 ratio between the centre and states. This would mean the central government would have to reduce its debt from 57%-plus currently to 40% over the medium term.

These rules have been kept in abeyance ever since the pandemic struck in FY20-21, with the government only outlining the fiscal deficit target for FY25-26.

"Hence, in this budget, we would also watch out for the government's proposed medium-term targets as mandated under its fiscal responsibility legislation," Gudwani said.

Barclays expects a nominal GDP growth of 10.5% in FY26, up from an estimated 9.7% in FY24-25.

(With PTI Inputs)