CRISIL Market Intelligence and Analytics

By – Dharmakirti Joshi, Chief Economist, CRISIL

The slowdown in GDP growth in the first quarter was a foregone conclusion due to signs of weak urban consumption, tepid corporate results and a slowdown in government spending. National Statistical Office (NSO) estimates the GDP growth at 6.7% against our expectation of 6.8%.

Although overall private consumption shows mixed trends in the first quarter, initial signs of pick up in rural consumption are visible. We expect private consumption demand to improve this year over an anemic growth of 4% in fiscal 2024.

The low-base effect apart, improvement in agricultural growth and lower food inflation will augur well for private consumption, particularly in rural areas. Higher agricultural growth will augment income and lower food inflation will improve discretionary spending ability.

In addition, government spending on employment and asset generating schemes (PM Awaas Yojna for urban and rural areas) can provide additional support to consumption growth in rest of the fiscal.

That said, unlike last fiscal, rural consumption is expected to outpace urban, as higher interest rates impact urban areas more. The signs of this are visible in the Reserve Bank of India’s (RBI) consumer confidence survey released in August.