RBI Monetary Policy | Private consumption looks set to gain steam soon: Governor Das

Though the home loan rates have remained unchanged owing to stable repo rate since a year now, the share of affordable housing sales has seen a decline in top seven cities of India, which has developers worried.

Private consumption could see a boost with a pick-up in rural activity and steady urban demand, Reserve Bank of India Governor Shaktikanta Das said as part of his Monetary Policy announcement on April 5.

Das noted that private consumption is likely to gather steam, driven by heightened rural activity and consistent urban demand. “Urban households are projected to increase discretionary spending, as indicated by the Reserve Bank's consumer survey, alongside improving income levels, fostering a positive outlook for private consumption,” he said.

He noted that inflation has come down significantly even though it remains above the 4 percent target. He said that efforts are underway to ensure the comprehensive transmission of policy measures and to anchor household inflation expectations.

Going forward, the outlook for agriculture and rural activity appears bright, with good rabi wheat crop and improved prospects of kharif crops, due to expected normal south-west monsoon, Das said.

Strengthening of rural demand, improving employment conditions and informal sector activity, moderating inflationary pressures and sustained momentum in manufacturing and services sector should boost private consumption, as per the RBI governor.

“According to Periodic Labour Force Survey (PLFS), the unemployment rate fell to its lowest in the series at 3.1 percent (usual status) in calendar year 2023. Similarly, labour force sustained momentum in manufacturing and services sector should boost private consumption,” Das said.

He added that as per the RBI survey, consumer confidence one year ahead reached a new high.

Normalcy in monsoon could boost farm output

An anticipated bumper rabi wheat harvest in the 2023-24 season is poised to mitigate cereal prices. Favourable early signs of a normal monsoon bode well for the upcoming kharif season, he said.

With the anticipated normalcy in the upcoming southwest monsoon is expected to boost agricultural operations, rural activity is anticipated to amplify, complemented by steadfast urban demand, Das said.

“The envisaged rise in discretionary spending among urban households, supported by the Reserve Bank's consumer survey, alongside improving income levels, underscores a favourable landscape for bolstering private consumption. Assuming a normal monsoon, CPI inflation for 2024-25 is projected at 4.5 per cent,” the governor said.

“The escalating frequency of climate-related disruptions poses an inherent risk to food prices. Concerns loom over low reservoir levels, particularly in southern regions, coupled with projections of above-normal temperatures during April-June. The tight supply-demand dynamics in certain pulses and the pricing dynamics of essential vegetables warrant close monitoring,” said Das.

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