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Falling food and fuel prices are likely to add Rs 1.4 lakh crore to household spending power in FY16, higher than the Rs 50,900 crore registered last year, the research arm of ratings agency Crisil said in its latest report on consumption and its impact on the economy.
This increase is expected to boost spending on discretionary items in the next financial year, as consumers’ attempt to get out of a sustained slowdown that caused many of them to hold back purchases, it said.
"Measured in nominal terms, the increase is close to two per cent of the annual spending of households. These converging tailwinds, we believe, will lend the Indian economy a reasonably good consumption kicker," said the report released on Tuesday.
The unit also said the pick-up in consumption is expected to bolster growth of passenger vehicles as well as household appliances and electronic products. "We expect passenger vehicle sales to grow by 9-11 per cent in financial year 2016, up from three-five per cent in financial year 2015. Similarly, household appliances sales are forecast higher — television sales at about nine per cent compared to a 0.3 per cent decline in fiscal 2015, air conditioners at 15 per cent compared to nine per cent and refrigerator at 10 per cent compared to five per cent in the previous year," it said.
Crisil Research also noted that improving incomes and an increase in access to credit enabled by schemes such as Pradhan Mantri Jan Dhan Yojana would act as boosters to consumption. "The key contributors to the decline in private consumption have all started to turn around. The new GDP series shows private consumption growth surging to 7.1 per cent in fiscal 2015. And for fiscal 2016, we expect it to rise anew to 7.8 per cent," it said.
Crisil Research's estimates are based on recent numbers. Consumer price inflation fell from levels of around 8.3 per cent in March 2014 to 5.1 per cent in January 2015. Crisil says it is estimated to average 6.5 per cent in the financial year 2015 – down from 9.5 per cent for financial year 2014 – before heading even lower to 5.8 per cent in the financial year 2016.
"The sharpest fall will come from food, where inflation is estimated to slide to 7 per cent in the financial year 2015 and further down to 5 per cent in fiscal 2016. This is from 11.3 per cent in the financial year 2014. As a thumb rule, every one percentage point increase in food inflation pushes up overall inflation by 40 basis points. This is the first round impact of falling food inflation on overall inflation,\" the research unit added.
