Updated on 29th May 2015


    • Overall inflationary pressures to stay benign in the next two quarters
    • Food inflation will be contained by sufficient buffer stock
    • Fiscal deficit contained within target, reducing long term inflationary trend.
    • Repo rate likely to be cut by 0.25% to push growth.
    • Worrying high NPA in the banking system may limit steeper fall in interest rate trajectory this year.
    • Capital goods sector showing signs of strong revival, rekindling hope in higher industrial growth.
    • Trade deficit will expand as global slow markets will contain export growth


The decline in inflation and revision of the GDP growth numbers are yet to instil the confidence to spend among the Indian consumers – be it rural or urban. Overall, consumer markets grew by 7% only the past quarter, the slowest in over a decade and decelerating further from the 10.5% growth recorded in the previous year. The high incremental growth from expanding rural demand has slackened due to a number of factors : no significant revision in MSP as world food prices stabilised, 15% decline in wage pay out under MGNREGA, single digit rural wage growth, low agricultural price rise, 5% lower production in foodgrain, etc. The negative impact on the top end of the rural consumers can be gauged from the 13% decline in tractor sales – 5.5 lakh in 2014-15 compared to 6.3 lakh in 2013-14, as well as stagnancy in overall two wheeler sales and 3% decline in motor cycle sales.

Despite all the ills afflicting the rural economy, however, most of the major FMCG companies have been reporting rural sales growth higher than urban sales. Urban demand, which accounts for ~2/3rd of consumer demand, is yet to indicate any firm direction towards revival - while on the positive side April four wheeler sales showed double digit growth, on the negative, even the major fast growing FMCG companies registered only single digit growth in urban sales.

With 61% of GDP accounted by private consumption expenditure, significant uptrend in economic growth is not possible without a revival in consumption demand. With lower than normal rainfall forecast, limited chance of any significant rise in MSPs with end of the global bull run in commodity prices, etc. a significant increase in consumer demand in the near term looks uncertain. International trade prospects are also curtailed this year, which will keep export demand low.

The focus for the government would be on the infrastructure push – on roads, electricity, communication, construction (especially in rural parts) to push the economic growth. ~10% Q4 growth in capital goods sector has definitely raised hope of industrial revival, yet a sustained revival depends on continued policy support and quickening of the pace of reform to attract investment revival. The RBI is expected now to go for a rate cut, given the sustained low inflation, slack consumer and industrial demand and lower than targeted fiscal deficit. Overall, growth in 2015-16 is likely to record a marginal rise and to be range bound in the 7.5-8.0% band.