<p><em>A recent study by a rating agency predicts that it will take some more years for the private final consumption expenditure to gather momentum and increase households demand for goods and services, writes <strong>Arshad Khan</strong></em><br><br> Rating agency India Ratings and Research expects the private final consumption expenditure to expand 8.1 per cent in FY16 from the estimated growth at 7.1 per cent in FY15. For the fiscal 2014 it stood at 6.2 per cent.<br><br>The growth is still well below what was witnessed during FY06-FY12, when India’s consumption expenditure was at its peak. Consumption demand growth was down to 5.5 per cent in FY13.<br><br>According to RBI, both near-term and longer-term inflationary expectations of households eased to 7-8 per cent in March 2015 from 15-17 per cent in September 2014. The rating agency believes this will help consumption demand to improve further. Though improvement in consumer sentiments is seen but still it will take a while for PFCE to gather momentum after a high and sustained inflation for four years.<br><br>The root cause for the low demand was the high and continuous inflation which hampered the growth rate of the economy. This created uncertainty over the price of goods and services in the economy, adversely impacting both consumption and investment decisions.<br><br>The rating agency expects the gross fixed capital formation (investment) to grow 6.9% in FY16 from the advance estimate of 4.1 per cent for fiscal 2015. The growth will be witnessed primarily by the budgetary aid and policy push to manufacturing/ infrastructure concerns by the government. By pushing pro-industrial policies like land acquisition, carrying out mining/spectrum auctions and increasing the foreign direct investment limit in insurance, the Modi Government is showing its resolution to improve the investment climate in the country. RBI’s recent cut in interest rates has further boosted the investment climate. <br><br>As noted above, government expenditure is also likely to push up aggregate demand in the economy in FY16. The report also adds that the government final consumption expenditure in the economy could grow at 8.9 per cent in FY16 (FY15: 10.0 per cent).<br> </p>
