Recent reductions in income tax burdens, moderate inflation, lower interest rates and an upbeat view of farm output are to boost rural earnings and assist overall consumption in India, a new report states.
As private final consumption expenditure constitutes nearly 60 per cent of India’s GDP, it has a substantial impact on India’s overall growth outlook.
A prolonged boom in consumption is also essential for a meaningful pick-up in private sector capital outlays.
“We forecast private consumption growth of 6.2 per cent in FY26 over an average of 6.7 per cent in the last three years. In the long run, it will be essential to monitor drivers of household income to enable healthy private consumption growth,” the CareEdge Ratings report said.
While total consumption growth has otherwise remained relatively robust over the last few years, the latest figures point to early tensions in city demand, if only while rural demand holds firm.
Crop-friendly farm production and easing inflation will bolster rural consumption in FY26, the report added.
Higher policy support in the form of RBI rate reductions, reduced tax rates, and easing of inflationary pressures will most likely bring some relief and optimism to urban consumption in the near term.
Further, rural consumption can get an added boost from the potential for a good monsoon during the current year, it stated.
When income growth has been weak, household leverage has risen. Household debt as on FY24 has crossed 41 per cent of GDP and 55 per cent of net household disposable income. Although, Indian households remain less leveraged relative to some emerging economies such as Thailand (87 per cent of GDP), Malaysia (67 per cent) and China (62 per cent).
The report stated that it is essential to monitor closely the unsecured component of household liabilities, which has picked up in post-pandemic phases. It is particularly the case in the scenario of moderation in growth in incomes and increasing delinquencies within the segment.
