Chief Economic Adviser (CEA) V Anantha Nageswaran has acknowledged that while the Reserve Bank of India’s (RBI) macro-prudential measures were necessary to maintain financial stability, they may have also contributed to a slowdown in credit growth, dampening economic activity and consumption.

Speaking to CNBC-TV18 on Friday, January 31, Nageswaran discussed the evolving consumption patterns in India and the factors affecting demand, particularly in rural and urban areas. He noted that concerns about a K-shaped recovery—where economic growth benefits certain segments while others struggle—had been prevalent in recent years but seem to have eased now.

Rural consumption rebounding, urban demand facing challenges

“The industry may have a bucket list of demands, some of which may be mutually inconsistent, so let’s not go there. But in terms of consumption, look, last year we were speaking about the fact that—no, last two years, 2022 maybe up to 2024—there was a lot of conversation about a K-shaped recovery in India, rural India lagging behind, etc. But now that is suddenly out of the window, because rural India’s consumption story is doing quite well. So it turned out to be cyclical and not structural in that sense,” Nageswaran said.

While rural consumption appears to have picked up, urban demand remains a mixed picture, influenced by multiple factors. He highlighted that the slowdown in urban consumption could be both cyclical and structural, with post-pandemic changes in private sector hiring and compensation practices playing a crucial role.

“Now in terms of urban consumption growth, yes, you may call it a quasi-cyclical, quasi-structural issue. And again, the answer is not necessarily with respect to government, but also with respect to how things may have changed post-COVID in terms of the private sector’s hiring and compensation practices. That has also a lot to contribute to the consumption slowdown we may have experienced,” he explained.

RBI’s measures impacted credit growth and consumption

Nageswaran also pointed to the role of the Reserve Bank of India’s macro-prudential actions, which were implemented to ensure financial stability but may have added to the slowdown in demand.

“More proximately, we could focus on the central bank’s multiple macro-prudential actions, which were necessary at different points in time, but collectively, they may also have contributed to a slowdown in credit growth, dampening economic activity and hiring,” he said.

These actions, while aimed at managing inflation and financial risks, may have tightened liquidity conditions, making borrowing costlier and impacting businesses and consumers. As a result, demand for goods and services, particularly in urban areas, may have slowed.

However, Nageswaran cautioned against framing the consumption slowdown as a purely structural issue, arguing that it was the result of multiple factors, including post-COVID labour market trends and credit-related policies.

His comments came on the day the 2025 Economic Survey was tabled in Parliament. Released ahead of the Union Budget, the survey provided an assessment of India’s economic trajectory and highlighted the need for caution regarding developments in both Indian and global stock markets.

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