‘To fix economy, boost consumption’

RBI officials suggest boosting consumption to revive India's economy amid stagnant private capex and high food inflation.

One way to revive the animal spirits amid India’s tripping economic growth is to boost consumption, senior Reserve Bank of India (RBI) officials said on Friday, noting that private capex is yet to show any visible signs of pick-up while government capex has slipped.

While they identified investment and manufacturing as the biggest drags on growth in an assessment of the economy, RBI officials, including the now former Deputy Governor Michael D. Patra, reckoned that the time is “apposite to rekindle the animal spirits, create mass consumer demand and trigger a boom in investment”.

“The middle class is pinning hopes on relief from food inflation and hence higher disposable incomes, especially the urban segment,” they said in the RBI bulletin. While December’s 5.22% inflation print was driven by “winter easing of prices when the earth offers up a rich bounty of fruits and vegetables”, the bulletin article said food inflation “continues to remain high, with key products” seeing high double digits inflation.”

“The stickiness in high food inflation, in an environment of firming rural wages and corporate salary outgoes, warrants careful monitoring of second order effects,” it said.

Weighing in tangentially on the threat posed by quick commerce and e-tailers to mom-and-pop stores, the article said private final consumption is the brightening spot in the economy, driven by e-commerce and q-commerce among which fostering competition is better than being restrictive.

The global economy is shaping up to be ‘anything but ordinary’ in 2025, and disinflation can be expected to be uneven, limiting monetary policy easing space. While disinflation would bring relief for households with severely stretched finances, they said the inflation battle is “entering a new phase with fresh upside threats on the horizon — the weaponisation of uncertainty — and the future path of interest rates is becoming hazy.”