Union Budget 2026: Consumer & retail sector looks for demand revival measures

By Rahul KakkarAs India prepares for the Union Budget 2026, the Consumer Products and Retail sector enters a phase of cautious optimism. The CPR sector finds itself operating in a landscape shaped not only by domestic economic considerations but also by shifting global trade dynamics and supply chain pressures. Over the past year, geopolitical tensions, and rising input volatility have forced companies to rethink sourcing and manufacturing footprints.The CPR sector is therefore looking for a pragmatic policy roadmap that supports consumption, simplifies taxation, stabilises supply chains and strengthens domestic manufacturing. The Government of India has already demonstrated a clear focus on stimulating demand through GST rationalisation and income‑tax incentives in recent years, and industry stakeholders expect this momentum to continue in the upcoming Budget with targeted policy support. Indian retail and consumer sector - Consumption Revival at the Core: The CPR sector contributes over 10% to India’s GDP and employs around 8% of the workforce. The sector’s market size is projected to expand from US$ 952 billion in 2024 to over US$ 1.6 trillion by 2030.A boost to disposable incomes through rationalised GST rates or relief for lower-income consumers would have a direct multiplier impact on demand. Given that the GST Council has rationalised GST rate in September 2025 to give consumption a push, businesses expect further clarity and continuity in GST policy directions. A holistic approach that strengthens rural income through greater infrastructure spending and agri-linked incentives would further support mass consumption categories.E-commerce and D2C need simplification: India’s retail ecosystem is shifting rapidly toward digitalisation. However, compliance requirements—especially relating to TCS under e-commerce transactions and state-wise GST complexities—continue to strain smaller brands.Businesses expect simplification of these provisions. For consumer and retail businesses—many of which operate with thin margins and complex distribution networks—clearer tax administration is essential for reducing working-capital bottlenecks and enabling faster market expansion.Additionally, offering tax credits for investments in digital tools like POS, AI powered supply chain solutions or inventory management solutions would help speed up the tech upgrade of traditional retailers.Boosting Domestic Manufacturing Competitiveness: India’s consumer products landscape is increasingly shaped by the “Make in India” momentum, with global supply chain re-balancing opening new opportunities.Industry bodies expect reintroduction of a concessional corporate tax regime similar to Section 115BAB to strengthen manufacturing competitiveness across consumer products and allied services. Additional depreciation for capital expenditure on energy-efficient and digitalised production lines could help companies modernise facilities faster. A renewed weighted deduction for R&D—especially in areas such as food processing, packaging innovation, and sustainable materials—would also support product innovation pipelines.Further, tax benefits for green packaging, and accelerated depreciation on energy‑efficient machinery would encourage companies to scale their sustainability agenda more aggressively.Customs Duty Overhaul: One of the most anticipated elements of Budget 2026 is the proposed overhaul of India’s customs architecture—widely referred to as “Customs Duty 2.0.” Policymakers and industry leaders have emphasised that India’s customs framework must evolve to address global tariff volatility, structural trade shifts, and the need for greater policy predictability. Finance Minister Nirmala Sitharaman has already signalled that customs reforms will be India’s “next big reform frontier,” reflecting the strategic importance of modernising this regime.India currently has eight customs duty slabs, contributing to classification disputes and cost unpredictability. Industry experts expect to reduce these slabs to five or six, with a clear differentiation between raw materials, intermediates, and finished goods—supporting domestic manufacturing and lowering cost disabilities. Further, industry experts advocate transitioning to end-to-end digital integration across documentation, valuation, and clearance processes to reduce delays and unlock working capital.A one‑time amnesty scheme for legacy disputes and a rationalisation of over 1,000 exemptions can be considered to streamline the system and reduce long-standing classification disputes.Clarifying the scope of significant economic presence (SEP): Issuing detailed guidance on SEP provisions for non-residents including reporting requirements and compliance would reduce ambiguity, facilitate cross-border compliance, 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 restructuring for specified companies. The demerger definition under the Income-tax Act makes reference to section 230 to 232 of the Companies Act, 2013. Therefore, there is risk of fast-track demerger under section 233 not being regarded as tax neutral demerger. By extending tax neutrality to fast-track demergers would help companies will lead to tax certainty and ease of doing businessBudget of Opportunity: Budget 2026 presents an opportunity to reinforce India’s consumption engine, bolster domestic manufacturing, inspire innovation and streamline tax administration. A policy package focused on tax certainty, indirect tax rationalisation, encourages long-term investment, simplified compliance, customs restructuring and targeted incentives can help the sector navigate tariff driven uncertainty and unlock the next phase of growth. By combining inward looking support with outward facing competitiveness, the Budget can position India as a resilient consumer goods hub in a rapidly shifting global trade environment.(Rahul Kakkar is Tax Partner, Consumer Products and Retail Sector, EY India. Ankit Jain, Sr. Manager, Indirect Tax, EY India & Jaydeep Chavada, Sr. Consultant, Indirect Tax, EY India contributed to the article)