Updated on 20th January 2015


    • RBI’s unexpected rate cut in January clears the air for the year, expect moderate measured cuts ahead
    • With low global crude price, inflation and trade deficit numbers will continue low
    • As rabi crop less than normal, expect consumers to bear the brunt of food price rises by summer
    • The global slowdown brings headwinds and challenges to the RBI in maintain rupee stability this year


2015 began on a very bright note, with the RBI cutting rates unexpectedly on the 15th. With crude prices moving much below $50 per barrel, the global slowdown bringing metal prices down and our government pushing ahead on positive moves towards curbing the fiscal deficit, the RBI’s comfort levels have undoubtedly been raised. The lower inflation has led to propping up consumer sentiment and even though sales have not picked up dramatically across the durables and FMCG segments, there is a general expectation that benign inflation will relieve household budgets substantially and demand will pick up. There are some headwinds in the air though.

To being with, the global slowdown will not help manufacturing or exports to stage a strong recovery. Further, rural markets are set to show stress over the next quarter. Rabi sowing has lagged considerably behind the normal area sown in the season, stocks and prices and therefore incomes will all take a hit. The Minimum Support Prices saw low rises and rural real wages have barely grown this year, at a rate slowest in a decade in fact. With bank credit not picking up, India’s rural areas will not be in a strong position to bolster demand. As things stand now, this year personal expenditure is not going to rise significantly, capital expenditure is yet to show a strong recovery and exports face challenges in high growth. This leaves government expenditure to boost growth and the Budget will reveal the plans of the government for the year ahead.

When it comes to the fiscal side, the government will be constrained by the need to keep a tight rein on the deficit, ensure reduction of subsidies and better collection of taxes. So far, the intent has been shown on many fronts, particularly by not extending the excise duties concessions last month, by raising excise duties on petrol, on pushing ahead with an aggressive DBTL programme etc. All eyes will be on the Finance Minister next month on how the GST will be rolled out and how political and other pressures will be tackled. India can have a lot going for it this year, putting in a stable base for stronger growth ahead; till the changes are effected, we will stay just around the 6% level of growth.