Chennai: Easing inflation and improved real rural wage growth have led to the reception of private consumption, while a focus on fiscal consolidation has slowed government consumption.
Private consumption is expected to grow 7.5% in the fourth quarter of FY4, compared with 6.9% in the quarter of that year. Loose inflation and stable and sustained real rural wage growth have raised consumer demand growth to its highest level since 1QFY25.
Retail inflation was 3.7% in the fourth quarter, targeting below the 4% target for the first time after the 21-quarter gap.
IND-RA expects retail inflation to drop to 3.2% in April 2025, the lowest since July 2019, due to continued easing of food inflation.
Prices of key foods such as tomatoes fell by 34.2%, onions 5.7%, potatoes 11.3%, beans 5.2% and rice in April 2025. IND-RA expects that from 2% in March 2025, IND-RA expects wholesale inflation to drop to 1.4% in April 2025.
Meanwhile, in the fourth quarter’s quarterly results, various FMCG companies showed that rural demand continued to recover. In the third quarter, real rural wage growth remained positive. In January, it averaged 3.7%, the fastest growth rate since FY200.
However, government consumption spending is expected to drop to 5% in Q3 in Q4, from 8.3% in Q3. As government consumption grew 6.6% in fiscal 24 in the fourth quarter, a high basis led to slow growth in the previous quarter. In addition, the government moves towards fiscal merger targets and will also reduce spending.
In the fourth quarter of FY4, investment demand accounted for 6.5%, compared with 6% in the same period last year and 5.7% in the previous quarter.
