The Confederation of Indian Industry (CII) has urged the government to introduce key measures in the 2025-26 Budget to stimulate consumption in the economy, which had entered into a patch of growth slowdown in the second quarter. The economy recorded seven quarter low growth of 5.4 per cent in September quarter.

The apex industry chamber proposed lowering the highest marginal personal income tax rate for earnings up to ₹20 lakh per annum, citing the significant disparity between the top individual tax rate of 42.74 per cent and the corporate tax rate of 25.17 per cent. 

CII believes this move could ignite a virtuous cycle of consumption, economic growth, and increased tax revenue. The industry body also recommended reducing excise duties on petrol and diesel, pointing out that fuel prices heavily influence inflation and household spending patterns.

The central excise duty alone accounts for approximately 21 per cent of the retail price for petrol and 18 per cent for diesel. 

Since May 2022, these duties have not been adjusted in line with the approximately 40 per cent decrease in global crude prices, CII has said. Lowering excise duty on fuel would help reduce overall inflation and increase disposable incomes, according to CII. 

“Domestic consumption has been critical to India’s growth story, but inflationary pressures have somewhat eroded the purchasing power of consumers. Government interventions could focus on enhancing disposable incomes and stimulating spending to sustain economic momentum,” Chandrajit Banerjee, Director General, CII, said. 

He highlighted that persistent food inflationary pressures particularly impinge upon low-income rural households who allocate larger share to food in their consumption basket. 

“While recent quarters have shown promising signs of recovery in rural consumption, targeted government interventions, such as increasing per unit benefit under its key schemes like MGNREGS, PM-KISAN and PMAY, and providing consumption vouchers to low-income households, can further enhance the rural recovery,” Banerjee added. 

Other suggestions 

CII has also called for an increase in the daily minimum wage under the MGNREGS from ₹267 to ₹375 as suggested by the ‘Expert Committee on Fixing National Minimum Wage’ in 2017. CII Research estimates show that this will entail an additional expenditure of ₹42,000 crore.

CII has also called for an increase in annual payout under the PM-KISAN scheme from ₹6,000 to ₹8,000. Assuming 10 crore beneficiaries, this will entail an additional expenditure of ₹20,000 crore, according to CII.

CII has also called for an increase in the unit costs under the PMAY-G and PMAY-U schemes, which have not been revised since scheme’s inception.

Consumption Vouchers 

CII suggested the introduction of consumption vouchers, targeted at low-income group, to stimulate demand for specified goods and services over a designated period. The vouchers could be designed to be spent on designated items (specific goods and services) and could be valid for a designated time (like 6-8 months), to ensure spending, CII has said. 

The beneficiary criteria can be defined as Jan-Dhan account holders who are not beneficiaries of other welfare schemes.

Highlighting the weakening trend in household savings, Banerjee noted that “low returns on bank deposits compared to other avenues such as equities and mutual funds, coupled with a higher tax burden on interest income, have made bank savings less attractive”.

Bank deposits as a proportion of household’s financial assets have declined from 56.4 per cent in FY20 to 45.2 per cent in FY24. 

To boost bank deposit growth, CII proposed in its 2025-26 budget recommendations a lower tax rate on interest income from deposits and a reduction in the lock-in period for tax-benefit fixed deposits from five years to three years. These measures could encourage greater savings in banks, according to CII.