New Delhi: A recent report says that lower income taxes, easing inflation, falling interest rates, and a good outlook for farm output are likely to boost rural incomes in India. This could lead to higher spending across the country. Since household consumption makes up nearly 60 per cent of India’s GDP, any rise in rural demand can have a big impact on the nation’s overall economic growth.
A steady rise in consumption is crucial for a strong rebound in private sector investment. “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 a report by CareEdge Ratings.
Overall consumption growth has been fairly strong in recent years, but new signs point to growing pressure on urban demand, while rural demand remains steady. 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. (With IANS Inputs)