Govt's budget cuts on subsidies could further weaken rural demand: CareEdge

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RBI’s) inflation target range for the first time since February. The Reserve Bank of India's (RBI) Monetary Policy Committee (MPC) had in August voted to leave the repo rate unchanged at 6.5%. Repo rate is the interest rate at which the RBI lends to commercial banks.

"Amid these evolving global developments and weather-related vagaries, rural demand remains most vulnerable and can be hit by a dual blow of higher food inflation and lower income," the report said. "The government’s budgeted cuts on subsidies introduced during the pandemic can further weaken rural demand," it added. During the annual budget announcement, earlier this year, the government cut down on its subsidy and subsidy-related schemes by about 28% at ₹4.03 lakh crore.

Finance Minister Nirmala Sitharaman had announced during her Union Budget speech that subsidy on food was to be brought down to ₹1.97 lakh crore during FY24 from ₹2.87 lakh crore incurred in the previous fiscal. "As kharif sowing activity is expected to be over by the end of August, the sowing of these crops is unlikely to improve drastically. A drop in yield due to irregular monsoon and a lower acreage can lead to a demand-supply mismatch, further increasing inflationary pressures in the food basket.