Road brigade (main shopping street), Bangalore, Karnataka, India
Peter Adams | Stone | Getty images
This report comes from this week’s “Inside India” newsletter “inside India”, which brings you news and comments on the market for opportune news on emerging power and large companies in its dazzling ascent. Like what you see? You can subscribe here.
The great story
The first budget of India under Prime Minister Narendra Modi‘The current government was eagerly awaited because the country affirms to a slowing economy, depreciating rupee and the world’s macroeconomic opposite.
The government’s message was subtle, but clear: average income class must spend more to increase business income and stimulate the economy.
In a punch, the Minister of Finance of India Nirmala Sitharaman has removed taxes for people With an annual profit of up to 1.2 million Indian rupees ($ 13,694), against a previous threshold of 700,000 Indian rupees.
The measure should benefit 10 million additional taxpayers With savings that can be channeled towards the investment or purchase of goods and services. This results in a Grid-Ci-Million of Indian rupees in the annual income of the Treasury.
Consumption levels in India have almost Tripped to 200 Billions Indian rupees over the past decade, in addition to growth in the country’s population to 294.3 million households. The segment now explains around 60% of India’s economy – Make it the first growth engine.
Upasana Chachra, chief economist from India to Morgan Stanley, describes consumption as “one of the pillars of the Indian economy”.
“It is undeniable that this plays an important role in the stability of the final demand,” she said inside CNBC India.
Consumption cracks
However, the government’s laser focuses on increasing consumption – on the development of infrastructure, on which it has historically focused – comes in response to deep cracks in consumer spending.
The exclusion of the luxury market and segments at the service of the rural population, the levels of consumption between the sectors have decreased as an Indian city dwellers – which have struck 522.9 million Since 2023 – Reduce expenses.
Among the factors arousing this recent report Of the market company in market study Kantar Saints.
From supermarket chains to car manufacturers, companies have felt the pinch. Several of the largest companies in India, such as Hindustan Unilever,, Maruti Suzuki and Retail reliance – the retail branch of Reliance industries – declared a slowdown in income and lower income last year, due to languid urban demand.
Household expenditure flaws are also difficult to find it for foreign companies in the running for the future growth of India.
A cyclical slowdown
India’s lull in consumer expenses is partly due to “cyclical slowdown in consumption”, while households reduce expenses to save more or service loans contracted during the post -avist 19 . Boom of pandemic expenses, explains Dhiraj Nim, foreign exchange strategist and economist in Anz Bank.
“Naturally, consumption will be lower in this part of the cycle. So we do not have to worry too much because there are political levers to remedy it, as a reduction in rates by RBI,” said Nim to the ‘Interior of CNBC India. The Central Bank of India is expected to reduce interest rates on February 7 at its first political meeting with Sanjay Malhotra as governor.
In this context, Nim says that the government’s decision to reduce the tax “will not result in a considerable boost to GDP growth”.
Marginal household propensity to consume (MPC) is 0.6 to 0.7, which means that their expenses will only increase from 600 to 700 billion Indian rupees, despite the Indian tax concessions of the Indian Ruel, estimates the NIM. MPC captures an individual’s desire to spend, for each additional dollar income. A reading of 0.6 or 0.7 implies that only 60% to 70% will be spent by dollar won.
While reducing the budget deficit ratio, this fiscal reduction will also result in a decline in government routine expenditure of 0.4 percentage of GDP, “completely compensating for any increase in tax relief,” said NIM.
For him, a more effective approach would be to provide a “wide relief for the economy”, for example, to reduce fuel prices or to adopt measures that reduce inflation and increase simultaneously. Such measures, adds Nim, will strengthen the higher costs with which consumers are struggling through income levels.
Is an increase in consumption sufficient?
The size of the consumption of consumption to the GDP of India is a reason sufficient to attract the attention of the government. However, with the real GDP growth in India should reach a four -year hollow 6.4% During the current financial year ending in March, experts call for other measures to thwart the slowdown.
Reference to economic policies in other countries such as China, the Chachra of Morgan Stanley noted that an increase in government capital spending (CAPEX) – as well as consumption – could stimulate growth via young generation. This would involve investing in aspects such as the creation of jobs or the development of cities, which would benefit the educated and ambitious people from India.
“The gradual growth of investment GDP in CAPEX is more than for consumption. When CAPEX accelerates and jobs are created, income levels will also increase. This will guarantee that consumption growth is also maintained,” said explained Chachra.
On 3% of GDP was allocated to Capex for Indian exercise from April. The proposed initiatives include an increase in foreign direct investment flows and a fund for infrastructure and redevelopment initiatives in cities, which the recent budget included.
Hope is now that these initiatives work in tandem to create jobs, ultimately improving productivity and wages. If it is well executed, this long process could stimulate urban consumption – and feed the essential economic growth.
Need to know
The India reserve bank will probably reduce interest rates. Economists expect The Central Bank of India announces a decrease of 25 basic points at its repo rate at its political meeting on Friday. If the bank produces prices, it would be the first finish in almost five years. Investors will also examine the statements of the Governor of RBI, Sanjay Malhotra, who assumed the role in December, in order to assess the orientation of the bank’s monetary policy.
The Bharatiya Janata party is expected to win the Delhi assembly elections, according to exit polls. If the Prime Minister of India Narendra Modi BJP trains the government In the national capital, it would be the first time that the party has prevailed in 27 years. The outgoing party Aam Aadmi rejected the exit polls, questioning their precision.
India’s budget prioritizes the reduction in budget deficit. The Indian government aims at a budget deficit of 4.4% of the gross domestic product for the year 2025 to 2026, the Minister of Finance Nirmala Sitharaman announced on Saturday. This objective is down compared to a deficit of 4.8% stated during the current year and a peak of more than 9% during the year 2020-2021. Go to the debt to the GDP of the GDP deficit as a metric in the next financial year, the government also said that it planned to reduce its 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 invitation on Monday, with the visit scheduled for the week of February 10, after the United States expelled illegal Indian migrants to the country the same day. Modi received a call with Trump on January 27, during which the leaders discussed bilateral links and trade relations. India also wants to avoid the American prices that Trump has so far imposed in Mexico, Canada and China.
Volkswagen continued the Indian government for its $ 1.4 billion tax request. In September, India issued a tax notice of $ 1.4 billion in Volkswagen, saying that the German car manufacturer had paid lower rights from 5 to 15% by poorly classifying its imports of car components like ” Individual parts “separate expeditions rather than” completely slaughtered units “, which would have attracted a tax of 30 to 35%. Volkswagen said in his file, which had been examined by Reuters, that the tax dispute could compromise its $ 1.5 billion investment in India.
What happened on the markets?
Indian shares were negotiated during last week, after showing signs of pickup the previous week. THE NIFTY 50 The index closed at 23,508.40 points in the week ending on January 31, an increase of 1.8% compared to the previous week.
The yield of the Indian government’s obligations to 10 years of reference has slightly reached the bar of 6.78%.
On CNBC TV this week, Anand Gupta, principal director of the portfolio at Allianz Global, said that global geopolitics “played the advantage of India”, which is the least exposed to the risks of a trade war triggered by the Trump prices. In this regard, GUPTA cited the growth of the electronics manufacturing sector and China’s offset during Trump’s first mandate.
Meanwhile, the chief economist of HSBC in India, Pranjul Bhandari, said that the Indian government “tries to do many things” with its budget in 2025, namely “to lower the budgetary deficit, give a strong increase Consumption and also keep its Capex push. “However, something must” in these ambitious objectives, said Bhandari, adding that if the administration of New Delhi wants to achieve its deficit lens, it cannot give a great push to the economy.
What’s going on next week?
Consumer pride index for India, the United States and China will be up to next week. Investors will monitor if inflation is under control in India and the United States, while monitoring signs of deflation in China.
February 7: Interest rate decision of IndiaUS Nonfarm Payrolls for January, preliminary reading of the feeling of Michigan consumers for February
February 9: Chinese consumer price index for January
February 12: Consumer price index in India for January, American consumer price index for January
February 13: American production price index for January, gross domestic product in the United Kingdom for the fourth quarter
