With an increase in rabi sowing this year, the rural consumption is also expected to revive as farmers will have more money at their disposal.
RBI Monetary Policy Committee: With an increase in rabi sowing this year, the rural consumption is also expected to revive as farmers will have more money at their disposal. While it has been a year of slowdown in the consumer sector, majorly owing to a slump in rural spendings, “private consumption, particularly in rural areas, is expected to recover on the back of improved rabi prospects,” RBI said in its sixth bi-monthly policy for this fiscal year. Further, the recent rise in food prices has also augured well for agriculture as this will support rural incomes, the central bank added. RBI has projected the increase in rabi sowing by 9.5% up to January 31, 2020 as compared to the same period a year ago.
A further push to demand and consumption is expected due to an announcement made by Finance Minister Nirmala Sitharaman in her second budget. Reduction in personal tax rates (only if one foregoes all the exemptions availed) is likely to spur demand as it will put cash in the hands of people, several leaders from FMCG companies including Marico, Britannia and Dabur had said post budget. “Rationalisation of personal income tax rates in the Union Budget 2020-21 should support domestic demand along with measures to boost rural and infrastructure spending, Reserve Bank of India said.
Meanwhile, RBI has kept the interest rates unchanged for the second time in a row in today’s MPC. “On the basis of an assessment of the current and evolving macroeconomic situation, the Monetary Policy Committee (MPC) at its meeting today decided to keep the policy repo rate under the liquidity adjustment facility (LAF) unchanged at 5.15 per cent,” RBI said in the statement released on Thursday. The MPC added it will maintain an accommodative stance as long as the growth is not revived and will also ensure that inflation remains within the target.