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The Confederation of Indian Industry (CII) has submitted a comprehensive pre-budget memorandum to the Finance Ministry, advocating for a series of measures aimed at stimulating consumption and bolstering the Indian economy. Central to their proposals is a significant reduction in excise duty on fuel. The CII argues that the current high fuel prices, driven in part by substantial excise duties (approximately 21% for petrol and 18% for diesel), are a major contributor to inflation, significantly impacting household purchasing power, particularly among lower-income groups. They highlight that despite a roughly 40% decrease in global crude oil prices since May 2022, excise duties have remained unchanged, exacerbating the inflationary pressure. Lowering these duties, the CII contends, would directly alleviate inflationary pressures, increase disposable incomes, and thereby stimulate overall consumption. This argument is grounded in the recognition that domestic consumption has been a critical driver of India's economic growth, and that current inflationary pressures are eroding consumer spending.
Beyond the fuel excise duty reduction, the CII's recommendations encompass a broader strategy to enhance disposable incomes and stimulate spending. This includes advocating for a substantial increase in the daily minimum wage under the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGS). The CII proposes raising the daily wage from Rs 267 to Rs 375, aligning with the 2017 recommendation of the Expert Committee on Fixing National Minimum Wage. This, they estimate, would require an additional expenditure of Rs 42,000 crore, but would significantly boost the purchasing power of rural laborers. Furthermore, the CII recommends a significant increase in the annual payout under the Pradhan Mantri Kisan Samman Nidhi (PM-KISAN) scheme, from Rs 6,000 to Rs 8,000, further injecting capital into rural economies and stimulating consumption. The increase in benefits under other key schemes such as PMAY (Pradhan Mantri Awas Yojana) is also proposed, recognizing the need to adjust existing unit costs that haven't been revised since the scheme's inception.
The CII's proposals also include innovative measures to directly target consumption among low-income households. The introduction of consumption vouchers is a key recommendation. These vouchers, targeted at Jan Dhan account holders who aren't beneficiaries of other welfare schemes, would be designed to stimulate demand for specific goods and services over a defined period (e.g., 6-8 months). This targeted approach aims to maximize the impact of government spending by directing it toward sectors and individuals most in need of a boost in purchasing power. The CII also suggests adjustments to the tax system to encourage savings and investment. They propose reducing the marginal tax rates for personal income up to Rs 20 lakh per annum, arguing that this would create a virtuous cycle of increased consumption, higher economic growth, and subsequently, higher tax revenue. Additionally, they recommend lowering the tax rate on interest income from deposits and reducing the lock-in period for fixed deposits with preferential tax treatment from five to three years. This, they believe, would incentivize bank deposit growth, which has seen a decline in recent years, further supporting financial stability and overall economic growth.
The CII’s recommendations underscore a holistic approach to economic management, recognizing the interconnectedness of various factors driving economic growth and stability. While the focus is on boosting consumption, particularly at the lower income level, the proposals also address broader issues such as fair wages, social safety nets, and fiscal policies aimed at encouraging savings and investment. The success of these recommendations hinges on the government’s ability to effectively implement these measures while carefully managing the fiscal implications. The overall strategy emphasizes a targeted approach, focusing resources on those segments of the population most likely to directly translate increased purchasing power into increased economic activity, thereby generating a multiplier effect that benefits the entire economy. The timing of these proposals, just ahead of the Union Budget 2025-26, signals their urgency and significance for the shaping of India's economic trajectory in the coming year.
Source: Cut Excise Duty on Fuel, Boost Consumption: Industry Body To N Sitharaman