Consumer Sector Approaches Budget 2026 with Cautious Optimism
As India prepares for the Union Budget 2026, the Consumer Products and Retail (CPR) sector enters a phase of cautious optimism. The industry finds itself navigating a complex landscape shaped by domestic economic priorities, shifting global trade dynamics, and persistent supply chain pressures. Over the past year, geopolitical tensions and rising input cost volatility have compelled companies to fundamentally rethink their sourcing strategies and manufacturing footprints.
Consequently, the CPR sector is actively seeking a pragmatic policy roadmap from the upcoming budget. Key expectations include measures to support consumption, simplify taxation, stabilize supply chains, and strengthen domestic manufacturing capabilities. The Government of India has already demonstrated a clear focus on stimulating demand through initiatives like GST rationalization and income-tax incentives in recent fiscal years. Industry stakeholders now expect this momentum to continue with targeted policy support in Budget 2026.
Reviving Consumption: The Core Economic Engine
The CPR sector is a vital component of the Indian economy, contributing over 10% to India’s GDP and employing approximately 8% of the national workforce. Its market size is projected to expand significantly from an estimated US$ 952 billion in 2024 to over US$ 1.6 trillion by 2030, highlighting its growth potential.
A direct boost to disposable incomes—potentially through further rationalized GST rates or targeted relief for lower-income consumers—would have a powerful multiplier effect on overall demand. Following the GST Council's move in September 2025 to rationalize rates and stimulate consumption, businesses are now anticipating greater clarity and continuity in GST policy directions. A holistic budgetary approach that strengthens rural incomes through enhanced infrastructure spending and agriculture-linked incentives would further bolster mass consumption categories, ensuring inclusive growth.
Simplifying E-commerce and D2C Frameworks
India's retail ecosystem is undergoing rapid digital transformation. However, this shift is often hampered by complex compliance requirements. Provisions related to Tax Collected at Source (TCS) for e-commerce transactions and state-wise GST complexities continue to strain smaller brands and direct-to-consumer (D2C) businesses.
The industry strongly expects a simplification of these provisions in the upcoming budget. For consumer and retail businesses, many of which operate on thin margins with intricate distribution networks, clearer tax administration is essential. It would help reduce working-capital bottlenecks and enable faster market expansion. Additionally, introducing tax credits for investments in digital tools—such as Point-of-Sale (POS) systems, AI-powered supply chain solutions, or advanced inventory management software—could significantly accelerate the technological upgrade of traditional retailers.
Boosting Domestic Manufacturing Competitiveness
India's consumer products landscape is increasingly influenced by the "Make in India" initiative, with global supply chain rebalancing presenting new opportunities. Industry bodies are advocating for the reintroduction of a concessional corporate tax regime, similar to Section 115BAB, to strengthen manufacturing competitiveness across consumer products and allied services.
Further measures could include:
- Additional depreciation benefits for capital expenditure on energy-efficient and digitalized production lines to help companies modernize facilities faster.
- A renewed weighted deduction for Research & Development (R&D), particularly in critical areas like food processing, packaging innovation, and sustainable materials, to support robust product innovation pipelines.
- Specific tax benefits for adopting green packaging solutions and accelerated depreciation on energy-efficient machinery to encourage companies to scale their sustainability agendas more aggressively.
Overhauling the Customs Duty Architecture
One of the most anticipated elements of Budget 2026 is the proposed comprehensive overhaul of India's customs architecture, widely referred to as "Customs Duty 2.0." Policymakers and industry leaders agree that the framework must evolve to address global tariff volatility, structural trade shifts, and the need for greater policy predictability. Finance Minister Nirmala Sitharaman has already signaled that customs reforms represent India's "next big reform frontier," underscoring their strategic importance.
India currently operates with eight customs duty slabs, a system that often leads to classification disputes and cost unpredictability. Industry experts expect a rationalization to five or six slabs, with clear differentiation between raw materials, intermediate goods, and finished products. This restructuring would support domestic manufacturing by lowering cost disabilities. Furthermore, transitioning to end-to-end digital integration across documentation, valuation, and clearance processes is advocated to reduce delays and unlock working capital.
A potential one-time amnesty scheme for legacy disputes and a rationalization of over 1,000 existing exemptions could be considered to streamline the system and resolve long-standing classification issues.
Enhancing Tax Certainty and Business Facilitation
The budget also presents opportunities to clarify other areas of taxation to improve the ease of doing business:
- Clarifying Significant Economic Presence (SEP): Issuing detailed guidance on SEP provisions for non-resident entities—including clear reporting requirements and compliance protocols—would reduce ambiguity, facilitate cross-border operations, and provide greater certainty to global businesses operating in India.
- Extending Tax Neutrality to Fast-Track Demergers: Fast-track demergers under Section 233 of the Companies Act, 2013, were introduced to enable quicker corporate restructuring. However, the demerger definition under the Income-tax Act references Sections 230 to 232, creating a risk that fast-track demergers may not be regarded as tax-neutral. Extending tax neutrality to these demergers would provide crucial tax certainty and further ease the business environment.
A Budget of Strategic Opportunity
Union Budget 2026 represents a significant opportunity to reinforce India's consumption engine, bolster domestic manufacturing, inspire innovation, and streamline tax administration. A cohesive policy package focused on tax certainty, indirect tax rationalization, simplified compliance, customs restructuring, and targeted incentives can help the sector navigate tariff-driven uncertainties and unlock its next phase of robust growth.
By strategically combining inward-looking support with outward-facing competitiveness, the budget can position India as a resilient and dynamic consumer goods hub within a rapidly evolving global trade environment. The decisions made will be pivotal in shaping the sector's trajectory for years to come.
