India consumption revival: 2025 rebound and FY26 cues

Consumption reaccelerates after a post-Covid moderation

India’s consumption cycle reaccelerated in 2025 after a temporary phase of moderation in the post-Covid-19 period. The data points to a broad improvement in discretionary spending as inflation eased and policy support turned more visible at the household level. Private consumption growth increased to 10.5% in 2025 from 8% during 2022 to 2024. The revival has been linked to government-led measures such as Goods and Services Tax (GST) reductions for select categories, personal income tax relief, and easier financial conditions through lower lending rates. Lower inflation also strengthened real purchasing power, helping sentiment.

Policy tailwinds: GST, tax relief and easier borrowing

Several parts of the policy setup referenced in the material work together to improve affordability. One thread is the rationalisation of GST rates that reduced retail prices across categories, supporting consumption “across the board,” as Bank of Baroda chief economist Madan Sabnavis said. A second thread is personal income tax relief, which increases disposable income for urban households. The third is the easing of inflation, which effectively raises real income without requiring nominal wage growth to accelerate. Lower lending rates add support, especially for big-ticket categories where EMI affordability matters.

Macro backdrop: growth holds up despite global headwinds

The consumption recovery has been framed against a broader macro backdrop where India delivered 8% growth in the first half of the fiscal, even as global headwinds such as higher US tariffs and volatile capital outflows persisted. The drivers cited are robust private consumption and investment, aided by easing inflation and favourable rural conditions. Within the national accounts context, private final consumption expenditure (PFCE) is described as accounting for nearly 61% of India’s GDP, making the consumption cycle central to overall growth outcomes.

Inflation cools sharply, supporting real demand

Inflation is a major part of the narrative because it directly affects both essentials and discretionary baskets. Private final consumption expenditure grew by 7.9% in the second quarter, supported by the lowest inflation level of 1.7% seen in a decade, rising disposable incomes from tax and GST relief, and better rainfall. Retail inflation was described as collapsing to a historic low of 0.25% in October, and averaging 2.5% across the first ten months of 2025, compared with last year’s 4.9% average. Analysts cited in the material expect such low inflation to persist into 2026, providing an additional cushion for consumers.

GST Council changes from September 22 and category-specific boosts

A key policy change highlighted is the GST Council’s decision to move to a two-rate structure of 5% and 18% from September 22. The material also notes significant reductions on consumer durables such as small cars, air conditioners, and large-screen televisions. The combination is presented as a direct boost to affordability during a period that already has seasonal demand tailwinds. Separate coverage of the festive season suggests that the GST cut covered around 400 product categories, which broadens the impact beyond a narrow set of goods.

FY26 signals: Q2 strength and festive-led Q3 expectations

The data and commentary included point to FY26 beginning with steady momentum. Private consumption climbed to a three-quarter high of 7.9% in July to September, compared with 7% in the preceding quarter, and stood at 7.5% in the first half of FY26. Bank of Baroda’s research note, as carried by ANI, said demand is poised for a strong rebound in the coming quarter, driven by rural recovery and “tax-led urban momentum,” with deferred demand from the previous quarter and a favourable monsoon supporting a sharper pickup in Q3 FY26. The same report flagged festive season tailwinds and the effects of GST rationalisation.

Festive season spending: Bizom and Bloomberg data points

A concrete high-frequency datapoint came from the month-long festive season window between September 22 and October 21. Spending rose 8.5% year-on-year to about INR 6,00,000 crore (US$ 67.6 billion), according to Bizom data shared with Bloomberg. Retailers reported strong sales in jewellery, electronics, apparel, furnishings, and sweets, aligning with a broad-based recovery in domestic consumption. The episode matters because it offers a real-time confirmation of the price and sentiment effects of tax changes during peak seasonal demand.

E-retail follows the revival, with momentum into Q1 2026

E-retail mirrored the consumption rebound, scaling to US$65 to US$ 66 billion in gross merchandise value (GMV) in 2025. Growth was described as running at a 19% to 21% CAGR, with significantly faster growth in the second half of the year and sustained momentum in Q1 2026, in line with broader consumption patterns. The material also expects shopper growth to be complemented by higher spend per shopper as affluence increases. A longer-term marker cited is India’s GDP per capita expected to surpass US$ 4,000 by 2030, which the note calls a key inflection point for discretionary spending in other markets.

Rural demand improves: monsoon, incomes and survey signals

Rural conditions appear repeatedly as a driver, supported by references to good monsoons and better sowing. NABARD survey data cited by the finance ministry indicates a broad-based increase in rural consumption, rising incomes, and healthier financial behaviour, with 80% of rural households reporting higher consumption this year. The material also points to deflation in key commodities such as tea, coffee, vegetables, and staples easing household inflation, alongside two consecutive good monsoons that lifted rural income.

Rates, liquidity and credit: RBI stance and consumption link

Monetary conditions also featured through the RBI’s policy stance. A report attributed to MP Financial Advisory Services LLP (MPFASL) noted that tax cuts, rate reductions and GST rationalisation are likely to boost disposable incomes, reduce borrowing costs and lower retail prices, helping revive consumption in the second half of FY2026. The RBI’s decision in October to keep the repo rate unchanged at 5.5% was described as signalling confidence in the growth outlook and price stability. The same report said consumption-led growth could help GDP growth approach 7% by FY2027, above the RBI’s projection of 6.5% for the current fiscal.

Cash-led consumption and sector signals from CMS Info Systems

A separate dataset from CMS Info Systems pointed to robust cash-led momentum in FY25. Consumer durables recorded a 72% surge in monthly spending, a sharp contrast to 6% growth in FY24, with the report attributing the spike to rising per capita income, increased home ownership and demand for furnishings and appliances. Multi-brand retail outlets showed a 12% increase after a -29% decline in the previous year. FMCG consumption posted 4% year-on-year growth after a -22% dip in FY23, while quick commerce registered a 10% increase. The average ticket size (ATS) of ATM withdrawals rose 3% year-on-year to INR 5,658, with sharper monthly increases in October 2024 (4%), January 2025 (4%), February 2025 (5%) and March 2025 (6%).

Key numbers at a glance

Why the story matters for markets and listed sectors

The material ties consumption strength to multiple listed-sector signals, including consumer durables, FMCG, and retail channels such as e-commerce and quick commerce. Category mentions include small cars, air conditioners and large-screen televisions, which are sensitive to GST and financing conditions. Festive season data provides a timely snapshot that can influence how investors interpret quarterly demand trends, especially when combined with commentary that “third-quarter numbers are likely to remain strong due to festive spending.” At the same time, one economist view in the text adds nuance: Madan Sabnavis said consumption momentum is likely to sustain next year, but not to expect an acceleration.

Conclusion: supportive conditions extend into 2026, with watchpoints

The collection of datapoints points to a consumption upcycle supported by tax measures, a sharp drop in inflation, and improved rural conditions. E-retail growth and cash-led spending trends add corroboration across channels. Going forward, the next checkpoints implied in the material are Q3 FY26 demand prints shaped by festive spending, and whether low inflation and GST changes continue to translate into higher volumes across categories. Policy signals such as the RBI’s stable repo rate stance at 5.5% and the ongoing impact of GST rationalisation remain central to how the consumption narrative evolves.