Tax rates

Following major policy reforms—lower income tax rates and a rationalised Goods and Services Tax (GST)—private consumption, which forms the bedrock of India’s economic growth, has shown resilience. Policy-led disinflation and monetary easing have temporarily strengthened consumer confidence. However, beneath this renewed optimism lie structural concerns such as rising household debt, uneven income growth, and widening inequality. For consumption-led growth to remain durable, deeper structural corrections are necessary.

Factors That Have Supported Consumer Confidence

1. Policy-Led Disinflation and Cheaper Goods

GST rationalisation contributed to a sharp moderation in inflation, with headline retail inflation falling to 0.25% in October 2025, making goods and services more affordable.

This decline in inflation improved real purchasing power and boosted discretionary spending. During the 2025 Dussehra–Diwali festive season, demand for consumer durable loans was 1.5 times higher than the previous year, signalling renewed consumer optimism.

2. Revival in Rural Wage Growth

After nearly three years of stagnation, real rural wage growth rose to 4.1% in Q1 (April–June) 2025–26.

This improvement was largely driven by a sharp fall in rural inflation to 2.4%, compared to 5.5% a year earlier. Nominal wage growth stood at 6.5%, the highest since mid-2023.

This rise in real incomes temporarily strengthened rural demand, particularly for essential and semi-durable goods.

3. Improvement in Urban Wage Indicators

Urban wage trends, proxied by staff cost growth in listed companies, recorded real growth of 5.7% in July–September 2025, the strongest in over two years.

Low urban inflation at 2.1% helped sustain real income growth and supported discretionary urban consumption.

4. Continued Monetary Support

The 125 basis points of rate cuts in 2025 by the Reserve Bank of India are still transmitting through the economy. Lower borrowing costs are supporting credit growth, housing demand, and consumer spending.

RBI’s Consumer Confidence Survey (CCS)

The Consumer Confidence Survey (CCS) is a bi-monthly survey conducted by the Reserve Bank of India to measure household sentiment regarding current and future economic conditions.

Coverage

Traditionally, the CCS has focused on urban households across major metropolitan centres such as Mumbai, Delhi, Bengaluru, Chennai, Kolkata, and Hyderabad.

To provide a broader perspective, the RBI introduced the Rural Consumer Confidence Survey (RCCS), covering rural and semi-urban households across 31 States and Union Territories.

Key Parameters

The survey evaluates perceptions regarding:

• General economic conditions

• Employment prospects

• Price situation and inflation

• Household income

• Current and planned spending

Significance

The survey plays an important role in shaping monetary policy decisions and assessing aggregate demand trends. It helps policymakers anticipate consumption patterns, retail sales momentum, and inflation expectations.

Concerns Surrounding Consumer Confidence

1. Deteriorating Household Balance Sheets

Household financial liabilities increased from 3.9% of GDP in 2019–20 to 6.2% in 2023–24, before slightly declining.

At the same time, net financial assets fell to a multi-decade low of 4.9% of GDP in 2022–23.

Between FY09 and FY23, real personal bank debt rose 2.9 times, while industrial wages increased only 1.9 times.

This imbalance has strained household finances, raising debt servicing burdens and limiting future consumption capacity.

2. Unsustainable Income Growth

The recent rebound in real wages has been driven largely by low inflation rather than strong nominal income growth.

If food prices remain subdued, farmers’ incomes may weaken, undermining rural demand. Urban nominal wage growth has remained largely stagnant since mid-2023, constraining disposable income.

3. Income and Consumption Inequality

India’s recovery exhibits a K-shaped pattern, where affluent households drive premium consumption while lower- and middle-income groups face stagnation.

This uneven recovery narrows the consumer base and limits broad-based demand expansion, threatening long-term sustainability.

4. Structural Vulnerabilities

Several deeper concerns persist:

• Declining household savings rates

• Growing reliance on debt-financed consumption

• Reduced spending share on education

• Rising health-related expenditures

• Increased consumption of ultra-processed foods

These trends raise concerns about the quality and durability of consumption growth.

Measures Needed to Sustain Consumer Confidence

1. Strengthen and Secure Household Incomes

Sustainable consumption requires durable income growth. This can be achieved by:

• Promoting labour-intensive exports

• Ensuring productivity-linked wage increases

• Strengthening agriculture beyond MSP through supply chain investments

2. Rebuild Household Financial Buffers

Households must regain financial resilience through:

• Incentives for financial savings with positive real returns

• Strict enforcement of macroprudential norms on unsecured loans

• Enhanced financial literacy

• Expanded social security coverage in health and pensions

3. Maintain Price Stability and Policy Predictability

A stable and predictable inflation regime—especially for food—is essential. Transparent tax policies and regulatory certainty allow households to plan long-term spending and savings decisions.

4. Promote Broad-Based Inclusive Growth

Bridging the rural–urban divide and supporting MSMEs through credit access and integration into global value chains will counter the K-shaped recovery. Inclusive growth is necessary to expand the consumer base.

5. Ensure Strategic and Credible Fiscal Policy

Balancing capital expenditure with human capital investments while maintaining fiscal prudence will create buffers for future shocks and encourage private investment.

Conclusion

While recent tax reforms, low inflation, and monetary easing have strengthened short-term consumer confidence, structural weaknesses such as rising household debt, stagnant income growth, and inequality pose long-term risks.

For consumption to remain the sustainable engine of economic growth, India must move beyond cyclical stimulus toward structural reforms that secure incomes, rebuild financial buffers, and ensure inclusive expansion.