India’s rural consumption is set to get a lift in FY26 on the back of favourable agricultural output, easing inflation, and policy measures like income tax relief and lower interest rates, according to a report by CareEdge Ratings. The improved rural outlook comes at a crucial time when urban demand is showing signs of strain.
Private final consumption expenditure, which makes up nearly 60 per cent of India’s GDP, plays a key role in shaping the country’s overall economic trajectory. A sustained revival in consumption is seen as necessary to drive private sector capital expenditure, the report noted.
CareEdge projected private consumption growth at 6.2 per cent in FY26, slightly lower than the 6.7 per cent average recorded over the past three years. The report stressed the importance of monitoring household income trends to maintain healthy consumption growth.
“While overall consumption growth has held up in recent years, early signs point to stress in urban demand, although rural demand remains resilient,” it added. A likely good monsoon this year could provide an additional boost to rural consumption.
In urban areas, recent RBI rate cuts, reduced tax burdens, and moderating inflation are expected to offer short-term relief. However, rising household leverage presents a growing concern, especially amid tepid income growth.
As of FY24, household debt stood at 41 per cent of GDP and 55 per cent of net household disposable income. Although India’s household leverage is lower compared to economies like Thailand (87 per cent of GDP), Malaysia (67 per cent), and China (62 per cent), the report flagged the need for close monitoring of the unsecured loan segment, which has seen a sharp increase post-pandemic alongside rising defaults.
