The Union Budget 2025-26 has introduced reductions in personal income-tax rates, a move that Moody’s Ratings believes will have a positive impact on India’s corporate and financial sectors.
The rating agency stated that increased disposable income among the middle class would boost consumer spending, benefiting domestic manufacturers, especially those in the two-wheeler, passenger vehicle, and white goods industries.
Moody’s has projected India’s GDP growth at 6.6 pc for the financial year 2025-26, indicating economic recovery. This estimate is slightly higher than the government’s first advance projection of 6.4 pc for 2024-25.
Alongside this, the government has set a fiscal deficit target of 4.4 pc of GDP for 2025-26, an improvement from the revised estimate of 4.8 pc in the previous fiscal year.
The tax cuts, while beneficial for individuals and businesses, will result in a projected revenue loss of ₹1 lakh crore. This could slow down fiscal consolidation efforts, even as the overall government expenditure as a percentage of GDP is expected to decline.
The government's long-term fiscal strategy aims to reduce central government debt to 50 pc of GDP by 2030-31 from the estimated 57.1 pc in 2024-25.
While Moody’s acknowledged this effort, it expressed concerns about India’s fiscal strength, stating that it remains weaker compared to most nations with a similar Baa credit rating.
Despite these challenges, the income-tax cuts are expected to drive economic activity, helping industries that rely on domestic demand. Financial institutions are also likely to benefit as improved purchasing power leads to higher consumer lending and spending.
The Budget 2025-26, with its focus on tax relief and economic recovery, aims to strike a balance between boosting growth and maintaining fiscal discipline.
Follow us
