Boosting Consumption: Barclays Calls for Effective Tax Cut in FY26 Budget

Barclays suggests the Indian government announce a personal income tax cut in the FY26 budget to bolster consumption and demand. Economic strategist Aastha Gudwani believes tweaking tax slabs won't significantly impact fiscal costs and could increase disposable income, especially as private investments await demand growth.

In anticipation of the forthcoming Union Budget, Barclays has called for an 'effective' personal income tax cut aimed at stimulating consumption and demand in the economy. The financial giant articulated its expectations in the FY25-26 Union Budget preview, stressing the importance of growth support while adhering to fiscal consolidation.

Aastha Gudwani, Barclays' Chief Economist for India, advocated for a tax rate cut by adjusting the tax brackets, arguing that the fiscal cost could be minimal. Gudwani emphasized the necessity of boosting consumption, essential for triggering private investment amid a slow-paced demand growth.

The report also pointed out other fiscal strategies like potential reductions in excise duty on fuel to enhance purchasing power. With the Finance Minister expected to tweak the new tax regime, Barclays predicts that the changes would render it more attractive for taxpayers. Additionally, the document emphasized the significance of customs duty alterations as the global trade landscape faces challenges. Barclays estimates the fiscal deficit target could be surpassed by 20 basis points this fiscal year, with the government likely to achieve its fiscal goals.

(With inputs from agencies.)