‘Rate cut not a silver bullet for growth revival’

Union Budget must revive India's slowing consumption impulses through multiple measures, including tax cuts and reforms roadmap.

There is no single silver bullet such as an interest rate cut that can address the economy’s slowdown, and the upcoming Union Budget must revive India’s slowing consumption impulses through multiple measures, including a cut in income taxes and fuel duties, and provide a reforms roadmap to bring growth back to the 7% level, India’s apex industry body’s head said.

Consumption has been somewhat subdued this year, but the healthy monsoon should boost rural incomes and easing food inflation will also provide some impetus to consumption through the rest of 2024-25, the Confederation of Indian Industry (CII) president Sanjiv Puri told The Hindu.

The chairman and managing director of diversified conglomerate ITC Limited stressed that the industry is expecting an interest rate cut but it not a silver bullet that can solve the flagging consumption or growth trajectory.

“A rate cut will provide some relief, as far as EMIs are concerned, and that also will help spur consumption and certain sectors may directly benefit of it, where purchases are taken through a loan. That will help progressively improve consumption, and with these factors panning out, I think, maybe in a couple of quarters, we should start seeing some better trends,” Mr. Puri averred.

While the CII chief indicated the need to decouple monetary policy from food inflation that is more related to weather vagaries, he said this needs to be tackled by building resilience in agriculture. “That is important, because when food inflation becomes sticky… in the middle class, you will find that it has a material weightage in their minds, and therefore impacts consumption also,” he said in a nuanced assessment.