Over the past two decades, these drivers have influenced consumption across distinct phases, including periods of broad-based growth and K-shaped recovery.
In FY25, all these drivers have shown signs of weakness. Household income growth has slowed, with rural wage growth remaining stagnant and organized sector wage growth decelerating.
Consumption loans, which previously offset income sluggishness, have also slowed, dropping from 25 per cent growth in FY24 to 15 per cent in FY25.
The income outlook for both rural and urban households remains bleak for FY26, with consumption loans likely to remain subdued. However, fiscal transfers may provide some relief, particularly for middle- and lower-income households. “While this fiscal spending tilt might come at the cost of capex, it would help support consumption, particularly at the lower-end.” says the report.
It also adds that rural consumption may increase as it was weak for few years but urban consumption may further slow down.
“Upper-end consumption may slow further after four years of a strong run,” the report quoted.
State governments have already increased social sector spending and the central government is expected to follow suit, potentially boosting rural consumption.
The Indian economy has seen a sharp slowdown, with real GDP growth falling from 8.2 per cent in FY24 to 6 per cent in the first half of FY25. The report highlights a convergence in real and nominal GDP growth trends, reflecting weaker aggregate demand.
Corporate performance also shows signs of convergence. While large corporations led the recovery post-COVID, their tax contributions have slowed, aligning with weaker growth trends observed in smaller businesses.
The report underscores that the Indian economy is supply-ready but demand-deficient. Real GDP growth between FY19 and FY25 has expanded at a modest compound annual growth rate (CAGR) of 5 per cent.
Factors such as subdued exports, government focus on deficit reduction, and cautious corporate capex have constrained household incomes, amplifying demand weakness.
As the economy grapples with these challenges, fiscal measures to boost lower-end consumption and recalibrate growth strategies may be critical for sustaining economic momentum in the coming years.
