India’s retail inflation for March fell to 3.34%, the lowest in nearly six years, increasing the likelihood of further rate cuts by the Reserve Bank of India (RBI).
The repo rate has already been cut twice, in February and April, from 6.5% to 6%, focusing on economic growth amidst global trade uncertainties.
Food inflation in March dropped to 2.69% due to falling prices of vegetables, eggs, and pulses, with vegetable prices down by 7.04%.
The repo rate cuts have already led to lower interest rates on bank loans, which could boost business investment, jobs, and consumption in normal conditions.
However, global uncertainties and dampened investor confidence due to tariff issues with the U.S. are affecting India's export growth, especially as the U.S. is India’s largest merchandise buyer.
A key concern is the sharp drop in food prices, which impacts farmer incomes and reduces rural consumption.
India’s post-harvest losses are significant, with ₹1.52 trillion lost annually due to poor storage and transport facilities, and 86% of farmers own less than two hectares of land.
The average monthly income of agricultural households is around ₹13,661, lower than in countries like China, Mexico, and Brazil.
Rural consumption has been rising, but there is a big gap in per capita spending between rural (₹4,122) and urban areas (₹6,996), which could be an opportunity for growth despite sluggish exports.
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