The Union Budget 2025-26 is a silent testimony of the government about the consumption distress in the Indian economy. After putting the onus on a capex-led economy boost, the government has changed tack and announced measures to boost domestic consumption by giving tax relief to the salaried class. The government spent around ₹10.18 lakh crore or approximately ₹1 lakh crore less than the budgeted capital expenditure of ₹11.11 lakh crore for FY25.

To boost consumption, the Budget has proposed new tax slabs and exemption of tax on income up to ₹12 lakh. As per government data, just 6.68% of the Indian population filed income tax returns in FY24 (the year for which latest data is available). Minister of State for Finance Pankaj Chaudhary said 8.09 crore income tax returns were filed in fiscal year 2023-24 out of which 4.90 crore individuals filed zero taxable income in their ITRs. Thus, 3.19 crore individuals or 2.17% of the population earn taxable income and get some relief from Budget 2025-26. The government has put its hope on this section of the population to revive the sagging economy.

For past one decade, the government has been doing the heavy-lifting to maintain buoyancy in the economy through capital expenditure and social programmes like free rations and MNREGA schemes. A disproportionate reliance on the government for basic sustenance, while the other engines of economic growth—consumption and investment—sputtered, resulting in slower GDP growth. In Q2FY25, India’s GDP growth slumped to a seven-quarter low of 5.4%. Also, heavy spending by the government on social schemes has strained public finances and there is little scope left for an infra-led economy push. Public debt (Centre and State combined) has crossed 83% of Indian GDP, which is much above than 60% limit prescribed by Fiscal Responsibility and Budget Management (FRBM) Act.

The government's tax relief to middle class came after yesterday’s Economic Survey portrayed healthy growth in aggregate demand in the economy. The survey stated that the Private Final Consumption Expenditure (PFCE) as a share of GDP (at current prices) is estimated to increase from 60.3% in FY24 to 61.8% in FY25, the highest share since FY03. No wonder that the government is banking on consumption to revive the economy.