In the sixteen century the Catholic Church in Rome established an office of the advocatus diaboli (Devil's advocate). The job of the Davil’s advocate was to argue against the canonization of a candidate proposed by the Church. The officer would use all his might to find faults in the canonization process and evidence of miracles attributed to the candidate. It was not necessary that the officer did actually believe in his arguments against the proposed canonization. The idea, apparently, was to avoid inadvertent mistakes and make sure that no underserving candidate gets canonized. Unfortunately, in the late 20th century, the office of advocatus diaboli has been diluted materially.
I like to often play Devil’s advocate to the popular investment narratives and consensus assumptions. The idea usually is to get more clarity and minimize mistakes in the investment decision making. Continuing with the practice, I would like to question the popular market assumptions about the (a) impact of Rs one trillion tax bonanza announced in the recent union budget and (b) economic impact of the ongoing Mahakumbh.
Tax Bonanza: The finance minister, in her recently presented Union Budget for FY26, has recently announced enhancement of rebate under section 87A from Rs25,000 earlier to Rs60,000. Besides, she also announced restructuring of tax-slabs, lifting the applicability of maximum marginal rate of 30% to the taxable income above Rs24,00,000 from the present Rs15,00,000. These changes would be applicable only for the assessees opting for the “new tax scheme” (where no deductions u/s 80 are allowed). The budget proposals assume that the government would forgo Rs one trillion of tax revenue from these proposals.
The popular market narrative after this announcement has been that the additional cash of rupees one trillion in the hands of middle-class households will boost (i) discretionary consumption and (ii) banking sector liquidity.
In my view, these assumptions may be somewhat misplaced. For, the benefit of slab change is available equally to all assesses opting for the new scheme. The benefit of additional rebate of UPTO Rs35,000 u/s 87A is available to the assesses reporting taxable income between Rs4 lacs and Rs12 lacs and opting for new scheme. A person reporting taxable income of Rs5,00,000 for example will get a rebate of only Rs 5000 u/s 87A. Appx 28% assessees are still filing returns under the old scheme. These assesses are not eligible for any fresh tax concession.
It is common knowledge that the propensity to consume varies with the level of income. People with lower base income usually have a higher propensity to consume and are more likely to spend higher on non-discretionary items. People with higher base income have a higher propensity to save and spend more on discretionary items.
Pertinent to note that tax saving would happen at the expense of lower revenue for the government. Since the deficit is not rising in the same proportion, it is safe to assume that the tax concessions are being given by curtailing government consumption. (For record, the revenue deficit for FY26BE is just Rs966.54 billion against Rs3102.07billion in FY25RE) So net consumption impact of these tax concessions on the economy might be neutral or even negative.
Moreover, in the past three years, the household financial liabilities have seen material rise. It is very much possible that this tax saving is used to pare debt. This could potentially be negative for both credit growth and system liquidity.
I would therefore argue that at this juncture it is almost impossible to correctly estimate the impact of this rupee one trillion tax concession on the economy and markets. It is more likely that it just adds to the consumer confidence, without actually boosting consumption.
Maha Kumbh: Reportedly, more than 450 million devotees are expected to visit the city of Prayagraj to take a dip in the holy rivers. The Uttar Pradesh state and the central governments are reportedly spending over Rs 100 billion in organization of this mega event.
Many analysts have extrapolated these numbers to a massive economic stimulus, assuming a multiplier impact on the economy. One brokerage report for example, mentions creation of over 8,00,000 additional jobs and generation of over Rs two trillion in additional revenue. It estimates Rs340 billion in additional revenue for the hospitality sector, Rs360bn in additional revenue for the transportation sector, Rs30 billion additional spending towards branding and marketing; and Rs50 billion in creation of durable infrastructure.
Having been to the city of Prayagraj multiple times, I find it very hard to believe the projected number of pilgrims attending this Maha Kumbh. Nonetheless, even if I accept the number of 450 million attendees, I know from my experience of attending several such events, 95% of the attendees are from very poor, poor and lower middle class. They either borrow or deplete their meager savings to pay for the travel expenses to make this once in lifetime pilgrimage. They mostly carry their own food, or avail free food. They sleep on streets or mela ground. The 0.01% rich and VIP, who fly in and out of the city on the same day spend the most on transportation; not much on food and hospitality. It is the 4.99% middle class visitors who spend on buying local food, stay in hotels and tents, pay to local transporters (taxi, auto, boat, rickshaw etc.), and take prasad and souvenirs back home.
Such events do provide a material income boost to the local economy, but it increases stress on much higher number of households who spend beyond their affordability; and/or carry disease and injuries back home. Factoring these events to the bottom lines of companies (hospitality, travel, consumption, financial etc.) could at best be a futile exercise. For example, I could not find any significant correlation between the previous mega religious events and companies’ profitability or overall economic growth of the country. Much smaller sporting or entertainment events, in fact, show much better correlation with the economy.
