Sai Giridhar, Vice President of the Federation of Automobile Dealers Associations (FADA), believes the combined effect of the rate cut and budget measures signals a “constructive policy shift” prioritising economic growth. He anticipates stronger demand, especially in the price-sensitive two-wheeler and entry-level car segments, which have been lagging. However, he expressed concern about potential price increases by manufacturers due to higher input costs and a depreciating rupee, which could neutralise the intended benefits.
Gummi Ram Reddy, Secretary of CREDAI National and CMD of Ark Group, welcomed the rate cut, though he said he hoped for a 50bp reduction. He sees this as a positive move for the real estate sector, as it will lower EMIs for homebuyers. Reddy also believes the budget decisions will further aid homebuyers and anticipates another 25bp rate cut in the next quarter.
Devendra Kumar Pant, Chief Economist at India Ratings & Research, offered a more cautious perspective. While acknowledging the positive direction, he believes the rate cut and budget announcements are unlikely to significantly boost consumption, as the demand slowdown originated from lower-income groups, who haven’t benefited substantially from the Budget.
Pant highlighted the importance of wage stability for increased consumption and pointed to the RBI’s own projections of higher inflation and lower growth in the first quarter of the next fiscal year as a cause for concern. He added that the success of the rate cut hinges on sufficient liquidity in the system, without which the impact may be minimal.
Pant also raised concerns about input costs, particularly the potential impact of US tariffs on India. He explained that such tariffs and a weakening currency could create a “double whammy” for the economy.
Furthermore, he stressed the vulnerability of agriculture to climate change, warning that a poor rabi harvest could lead to higher food inflation and further strain real wage growth. He noted that the RBI Governor’s assurance of sufficient liquidity is crucial in mitigating the adverse impact on rates.
Edited Excerpt:
Q: How do you feel the RBI rate cut will help boost consumption in the economy, which had been a big worry all of last year?
Pant: The RBI rate cut and the Budget announcements are unlikely to boost consumption significantly. If you look at the Budget announcement, those who stand to benefit are in the top 3% or 5% of the population. However, the slowdown in consumption demand originated from the people at the lower rung.
There will be some impact. But if you look at what will happen by RBI’s move, again, consumption response — if you look at the theoretical form or the empirical evidence — is more about the stability of wages because that is the bigger concern. If inflation trends down the way RBI has projected, real wage growth will increase. But the worrying point in today’s numbers is what many of us may not have looked at in the first quarter of the next fiscal year: April to June 2025. RBI expects higher inflation and lower growth compared to the December policy. And is that going to have some impact? No doubt, in totality, if they continue to maintain the liquidity in the right form, like whatever is required, then the transmission which happens to the benchmark interest rate and other interest rates, your easy liquidity will have a bigger impact. But if the liquidity doesn’t ease, it remains in deficit mode, then unfortunately, one may say that this 25bp repo rate cut will not yield results.
Q: How do you see this helping homebuyers? What would be your outlook now?
Reddy: Definitely, the RBI rate cut is going to help. We were expecting more, actually, 50 bps. But definitely, it’s a positive move. We have been waiting for this for almost five years because home rates and project funding have increased. So, this is going to give a positive note. We are also expecting another 25bp rate cut next quarter. So, this is positive for real estate as homebuyers’ EMI will decrease. Even Budget decisions will help the homebuyers.
Q: Over the last few years, entry-level car and commuter bike sales have been under strain. Do you see some improvement on the horizon after the tax sweeteners in the Budget and the rate cut?
Giridhar: In totality, if you talk about the Budget and the rate cut by the RBI today, it signals a constructive policy shift prioritising economic growth. So, it’s in the right direction. And with the auto loans set to become more affordable, we expect a stronger demand, especially in the price-sensitive two-wheeler and entry-level car segments. So, these two segments, which were lagging, will get some boost from both these steps.
The only worrying point is that the industry’s price increase should not neutralise it. The price increase is due to higher input costs and the depreciating rupee. But it’s a move in the right direction.
Q: Overall, what big message did you pick from the RBI governor’s speech? Now, this rate cut had been called for by people in the government, top ministers, and the industry. Everyone had been requesting and hoping that a rate cut would happen. What does this show regarding the RBI’s stand and the big challenges you’re looking for?
Pant: Apart from inflation, another big challenge is the input cost. The biggest unknown in this entire scheme of things is whether the US will impose any tariff on India. Currently, the US has imposed tariffs on Canada, Mexico and China. If imposed on India, it could also be a double whammy because of tariff and currency weakening. We could recover some of it in the form of services export because we are the leaders there and have a surplus on services export.
However, the inflation and the growth forecast assumes a stable or good rabi harvest. Agriculture is very vulnerable to climate change and if the rabi output because of excessive heat or higher temperature is not in line with the expectation, then we may see a situation where the food inflation doesn’t come down to the expected level, or the way it is thought of that it will lead to 4.2% inflation in FY26, if that happens. If we don’t see the commensurate increase in the nominal wages, then that will be a challenge for the monetary authority.
The only hope is that the RBI Governor has mentioned in his briefing that they will provide sufficient liquidity in the system. If enough liquidity is provided, the adverse impact on rates may decrease.
Watch the accompanying video for the entire discussion.