Rural Consumption Set To Drive India’s Growth In FY26: Report

The consumption outlook is especially significant given the structural importance of private final consumption expenditure, which accounts for around 60 per cent of India’s GDP

The report also flagged concerns about growing household leverage

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India’s overall consumption is poised for a boost in FY26, aided by a combination of lower taxes, a promising agricultural outlook, moderating interest rates, and softening inflation, according to a new report by CareEdge Ratings. These factors are expected to reinforce rural household incomes and lift spending levels across the economy.

Rural consumption, which has remained stable despite economic uncertainties, is expected to gain further traction in the coming fiscal year. The report highlights that an anticipated favorable monsoon season, coupled with easing price pressures, will likely underpin agricultural production—translating into improved earnings for rural households.

The consumption outlook is especially significant given the structural importance of private final consumption expenditure, which accounts for around 60 per cent of India’s GDP. Any recovery in this segment could significantly influence the country’s growth trajectory.

Urban Demand Faces Pressure

While rural demand trends remain steady, urban consumption is encountering challenges, with recent indicators reflecting signs of strain. Nevertheless, recent monetary and fiscal interventions—such as rate cuts by the Reserve Bank of India and tax reliefs—are anticipated to cushion urban households in the short term.

CareEdge Ratings noted, “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.”

Rising Household Debt

However, the report also flagged concerns about growing household leverage. As of FY24, household debt levels stood at 41 per cent of GDP and 55 per cent of net household disposable income. Though these figures remain lower than those in peer countries like Thailand (87 per cent), Malaysia (67 per cent), and China (62 per cent), the surge in unsecured borrowing post-pandemic poses potential risks.

The agency emphasized the need to watch the rising delinquencies in the unsecured credit segment, especially amid slowing income growth. Careful monitoring of household debt dynamics will be key to sustaining consumption momentum over the medium term.