With reduced incentives to deposit money in the bank, and market environment remaining uncertain to invest in, the money remains in the hand of consumers.
As food inflation lowers, consumer price indexed inflation recorded its lowest print in over three years. This leaves consumers with more money in hand, waiting to be spent.
“While we’re seeing some pick-up in rural consumption, urban consumption continues to remain sluggish on the back of muted urban wage growth,” said Gaura Sengupta, economist at IDFC First Bank.
“We’re still in the initial stage of the rate cut cycle, and we expect three more rate cuts, which would aid urban consumption. But what spurs consumption is consumer confidence, which is impacted by sentiment on wage growth, and the wealth effect of stock market,” Sengupta said.
“For urban wage growth to pick up, corporate profitability will also have to pickup,” she said.
“As the impact of lower interest rates and tax cuts comes in, the benefit should flow through to the discretionary side of consumption,” Teresa John, deputy head of research and economist at Nirmal Bang Institutional Equities said.
“A healthy monsoon should also aid rural consumption, with a clear benefit being seen during the festive period in the second half of fiscal 2026,” she said.
