Decrease in Inflation and Interest Rates Expected to Enhance Private Spending in FY26: Analysis
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New Delhi, Jan 8 (NationPress) Robust agricultural incomes are anticipated to bolster rural earnings in the next fiscal year (FY26), while decreased inflation and the potential for lower interest rates are expected to enhance purchasing power for discretionary spending in India, as indicated by a report published on Wednesday.
This fiscal year, real private consumption growth has surged to 7.3 percent, up from 4 percent last fiscal year.
According to a report from Crisil Market Intelligence and Analytics, supportive factors for consumption recovery in the short term have also emerged.
This fiscal year, the growth in government consumption expenditure has rebounded to 4.1 percent, up from 2.5 percent last fiscal year, thereby aiding the recovery of private consumption growth.
In recent fiscal years, government spending on welfare initiatives—such as NREGA, rural infrastructure, and housing construction—has created jobs and stimulated rural demand in the short term.
To sustain strong private consumption in FY26, it is essential for government spending to focus on employment-generating initiatives that increase incomes for those with a higher likelihood of spending.
A blend of expenditures on asset-creating projects (including rural roads, affordable housing, and National Rural Employment Guarantee Act initiatives) alongside increased government capital expenditure (capex) on infrastructure (such as railways, highways, and ports) could alleviate the inflationary effects of such investments.
The report highlights that if these supportive factors are realized, the growth in private consumption could be maintained in the next fiscal year.
This fiscal year, the agricultural sector has performed well, aided by favorable southwest monsoon rains and a strong kharif harvest. Adequate soil moisture and ample reservoir levels are also benefiting the rabi crop.
The government’s initial advance estimates predict agriculture GVA growth of 3.8 percent this fiscal year, which will further support rural earnings and demand.
Looking ahead to the next fiscal year, it is anticipated that the ongoing La Nina effect will positively influence the southwest monsoon, and with fewer weather disturbances, agricultural output and incomes will remain robust, thus continuing to support rural consumption.
