There is much cautious optimism on consumption recovery this festival season. Most commentaries of consumer goods companies during the announcement of results pin their hopes on H2 spending. This has been happening for the last 9 quarters, and has now become a 'rolling hope'.

So, how many boxes have been ticked?

GST reforms are a game changer because prices of several products will come down. For consumer durables and autos, entry-level demand should increase as savings could be as much as 10%. For other products and services, while consumption may not increase as there is a fixed amount of toothpaste and shaving cream that one can use, release of money through lower prices can increase consumption of other goods and services.

GoI has already lowered I-T rates effectively, with the budget announcing a revenue loss of ₹1 lakh cr. This will mean higher purchasing power. But will all this money be spent, saved or invested? Any saving in taxes for higher income groups - incomes above ₹15 lakh a year may not add to consumption if individuals were not really constrained by the income factor. So, it remains to be seen how much would be spent - and would generate more in GST collections for GoI.

Inflation in general has come down, which improves consumer confidence. All estimates point at inflation of 3-3.5% for the year. So, while low inflation doesn't mean falling prices, consumers will feel better off and probably spend more, especially as there has been pent-up demand over the last two years for manufactured products.

Here, of course, the reaction of companies is important. Several of them in the FMCG space have increased prices due to higher input costs. While part of this will get corrected through GST reforms, existing stocks will be a challenge for them.

Rural demand appears to be looking good, given that the monsoon has been satisfactory, and area under cultivation higher for all crops barring oilseeds and cotton. While there is news of damage of some crops in the north and west due to excessive rains, on the whole, kharif crop should be better. This, combined with higher MSPs, should augur well for rural demand this year too.

Unemployment ratio - be it the official NSO (5.4%) or CMIE (6.3%) - has come down. So, the number of people employed has been going up. The question, however, is where these jobs have been created, as they tend to be concentrated in logistics, retail and construction where incomes may not be high enough to support discretionary spending. So, the link with consumption is still tenuous, and its strength will be gauged this festival season.

On the face of it, it looks like most of the boxes have been indeed ticked, and preconditions for an upsurge in consumption are met. The conundrum, however. will be more within India Inc, which has not been particularly kind to 'headcounts', as witnessed by several firms, especially in IT, which have lowered the number of jobs. Also, with AI, companies are increasingly opting to migrate from people to tech.

Pace of increments has also slowed down, as corporates have tended to maintain their profit margins in an environment of anaemic growth in sales by controlling the salary bill in the last two years. The irony here is that as companies limit growth in headcount and get parsimonious with increments, this affects the overall spending power of employees. Which, in turn, affects demand for products of other companies. And therein lies the rub.

The writer is chief economist,Bank of Baroda. Views are personal