Recent reductions in income tax burdens, benign inflation, lower interest rates and a favourable outlook for agricultural production are expected to support rural incomes and bolster overall consumption in India, according to a new report.
Given that private final consumption expenditure constitutes nearly 60 per cent of India’s GDP, it has a strong bearing on India’s overall growth outlook.
A sustained recovery in consumption is also vital for a meaningful pick-up in private sector capital expenditure.
“We expect private consumption growth of 6.2 per cent in FY26 compared to an average of 6.7 per cent in the last three years. In the long run, it will be critical to monitor factors impacting household income to ensure healthy growth in private consumption,” said the report by CareEdge Ratings.
While overall consumption growth has remained broadly healthy over the past few years, recent indicators suggest emerging pressures in urban demand, even as rural demand continues to hold firm.
Rural consumption is expected to be supported by favourable agricultural output and easing inflation in FY26, the report mentioned.
Recent policy support in the form of RBI rate cuts, reduced tax burdens, and easing inflationary pressures is expected to offer some relief and support to urban consumption in the near term.
Moreover, rural consumption could get a further fillip from the likelihood of a good monsoon this year, the report mentioned.
At a time when the income growth has been weak, the household leverage has seen an uptick. As of FY24, household debt stands at 41 per cent of GDP and 55 per cent of net household disposable income. Even though, Indian households are less leveraged than certain emerging economies such as Thailand (87 per cent of GDP), Malaysia (67 per cent) and China (62 per cent).
The report said that it is essential to closely monitor the unsecured segment of household liabilities, which has increased in the post-pandemic years. This is particularly important in the context of moderating income growth and rising delinquencies in the segment.
(IANS)
