Income tax cuts, reduction in oil prices through tax cuts, and boosting Credit Linked Subsidy Scheme (CLSS) are some of the options that may be taken up in the upcoming budget to improve consumption demand.

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Poor consumption demand still remains a concern for the Indian economy, but the upcoming budget may lay out some measures to boost consumer confidence. More measures from the government are needed to improve the sluggish demand equation in the country, stated CLSA, the capital markets and investment group.

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The latest RBI survey on consumer confidence highlighted how consumer demand remained at significantly low levels despite seeing an increase during the second wave of the COVID-19 pandemic. While demand had been weakening even before the start of the pandemic, the economic effects of restrictions on transportation of goods and lockdowns led to a major shock.

“The COVID-19 outbreak began as a supply shock, as the government halted activity to contain the spread of the virus. It has rapidly metamorphosed into a demand shock on resultant job/income losses,” stated the Hong Kong-based instructional brokerage group.

CLSA also added that 75 percent of the respondents to its own consumer survey had reported losing their jobs or incomes since the pandemic. At the same time, 37 percent of respondents also said that they would be spending less during Diwali as well. Analysts also found that nearly 70 percent of consumption indicators fell month-on-month (MoM) in October 2021.

But the upcoming budget to be presented on February 1, 2022 can help alleviate the sluggish demand situation with some relief measures. Cutting taxes on oil prices, tax relief for income tax, boosting existing Credit Linked Subsidy Schemes (CLSS), and issuing infrastructure bonds could be some of the measures seen in the upcoming budget, predicted CLSA.

Tax cuts would most likely be focused on the lower side of the income tax ladder to improve household savings, while bigger subsidies on mortgages can help boost the demand for housing again. Tax reductions on oil, which already are being seen across the country, would help cut down on expenses. Issuance of NABFID infrastructure bonds might be used to reduce the pressure of funding capital expenditure of such measures in the upcoming financial year.

The demand situation may also see some relief due to rural demand growing on the back of higher crop farm income for the rabi crops. Though CLSA estimates that the winter wheat crop is 4 percent higher year-on-year (YoY), the cropping season has only just begun to make bolder predictions. The stock of reservoir water available to irrigate the summer wheat crop will also be an important metric to keep an eye out for further changes in rural demand.

(Edited by : Thomas Abraham)

First Published:Dec 11, 2021 11:25 AM IST