Lower inflation, reduced interest rates to boost private consumption in FY26: Report

New Delhi, Jan 8 (IANS) Healthy farm incomes should provide support to rural incomes next fiscal (FY26) and lower inflation and scope for reduced interest rates should improve purchasing power for discretionary spending in India, a report showed on Wednesday.

This fiscal, real private consumption growth revived to 7.3 per cent from 4 per cent last fiscal.

“What’s salutary is that some factors that support consumption recovery in the short term have also turned supportive,” according to a Crisil Market Intelligence and Analytics report.

This fiscal, growth in government consumption expenditure rebounded to 4.1 per cent from 2.5 per cent last fiscal, supporting private consumption growth recovery.

Over the past few fiscals, government revenue spending on welfare schemes, such as NREGA, rural roads and housing construction, generated employment and bolstered rural demand in the immediate term.

In FY26, for private consumption to remain strong, government spending must focus on employment generating schemes that put incomes in the hands of those with a higher propensity to consume.

“A combination of such spending on asset-creating schemes (rural roads, affordable housing and National Rural Employment Guarantee Act works) and furthering government capital expenditure or capex on infrastructure (railways, highways and ports) could moderate the inflation impact of such spending.

“If the supporting factors kick in, the pick-up in private consumption growth could be preserved next fiscal,” the report noted.

This fiscal, the agriculture economy did better with healthy southwest rains and robust kharif harvest. Good soil moisture and abundant reservoir levels are benefiting the rabi crop as well.

“The government’s first advance estimates show agriculture GVA growing 3.8 per cent this fiscal, which will support rural incomes and demand,” the report mentioned.

Next fiscal, assuming the recent La Nina effect that has just set in positively impacts the southwest monsoon, and there are fewer, less-disruptive weather disturbances, we expect agriculture output and incomes to remain healthy and continue aiding rural consumption, it added.

--IANS

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