New Delhi [India], February 3 : Multinational investment banking company Goldman Sachs said that the mega tax relief provided for in Budget 2025 will help the urban consumers boost their net household financial savings, besides partly boosting their consumption.
Goldman Sachs, in its India-focused report, noted further fiscal consolidation plans and a tilt towards the urban consumer in the budget.
"The net fiscal impulse drag on growth in 2025-26 will be smaller than in 2024-25," the report said.
Fiscal impulse is a parameter used to measure the changing impact of the Budget on the overall economy.
The government announced in the February 1 Budget that no income tax will be payable on income up to Rs 12 lakh, providing significant relief to taxpayers, especially the middle class. Earlier, this limit was Rs 7 lakh.
One crore middle-income Indian taxpayers will be out of tax net according to announcements in the Union Budget 2025 presented by Finance Minister Nirmala Sitharaman on Saturday.
As a result of the tax relief proposals, the government will forego revenue of about Rs 1 lakh crore in direct taxes and Rs 2600 crore in indirect taxes.
"Despite the tax revenue foregone, the government has budgeted income tax to GDP at 4.0 per cent (from 3.9 per cent in 2024-25). This, in our view, assumes a significant improvement in tax buoyancy (net of tax foregone), absent which, spending cuts will be required to meet the fiscal deficit target," said the Goldman Sachs report.
The central government stuck to the fiscal consolidation path in the first full budget of its third term.
It targeted fiscal deficit at 4.4 per cent of GDP in 2025-26 from the revised estimate of 4.8 per cent in 2024-25.
The difference between total revenue and total expenditure of the government is termed as the fiscal deficit. It is an indication of the total borrowings that may be needed by the government.
Further, capex allocation to states has been raised substantially this year. Goldman Sachs said this likely indicates that the government is passing the capex baton on to states.
According to the report, the Budget 2025 delivered three key messages government sticking to its fiscal consolidation path, commitment to keep the central government public debt on a declining path, and the readjusted income tax slabs.
The overall preference of Indian policymakers in recent years has been macro-economic resilience over chasing short-term spurts of growth, Goldman Sachs reiterated.
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