The Centre for Monitoring Indian Economy’s Consumer Pyramids Household Survey (CPHS) showed consumer confidence remained elevated between October through December. The Index of Consumer Sentiments (ICS) rose at an average of around 2% during this period, led by a sharp rural recovery, while urban confidence remains patchy.
Hinterland recovery
The quality of sentiment improved as rural households reported better financial conditions in December. The Index of Current Economic Conditions (ICC) in rural areas increased by nearly 3% in December, following a contraction in November, indicating stronger income perceptions and more favourable conditions for purchasing durables.
Goods and services tax (GST) cuts on select appliances and electronics improved the affordability of durables. However, two consecutive healthy cropping cycles, an above-normal monsoon, and higher reservoir levels mainly aided rural sentiments, noted QuantEco Research in its latest report.
Real agricultural wages also grew over 5% year-on-year between April and November in 2025-26, the fastest pace in nearly eight years. This supported a near 20% rise in tractor sales during the same period, while rural passenger vehicle sales expanded almost twice the pace of urban growth in Q3FY26, according to the report.
Additional discretionary support came from cash transfers and welfare spending by state governments ahead of regional elections, said Radhika Rao, senior economist at DBS Bank. But she cautioned that sustaining the current momentum will ultimately hinge on higher farm terms of trade and stronger non-farm rural job creation.
Urban fatigue
Urban households’ perception of financial conditions, however, softened in December, suggesting the recent consumption uptick is still riding on fiscal and festive tailwinds rather than stronger income dynamics.
QuantEco Research noted that urban job openings on employment portals showed only a marginal uptick in November and December, but overall employment conditions remain lacklustre. Madan Sabnavis, chief economist at Bank of Baroda, observed that corporate hiring has been selective as well, with financial services adding headcount while manufacturing and IT remain cautious.
“Most companies are sitting on surplus capacity and may not be going on a hiring spree; it will be more a case of replacing people,” he said.
Sabnavis added that muted increments and variable pay have dampened urban sentiment too, with companies focused on protecting margins amid soft demand.
Meanwhile, wage bills for BSE500 companies grew only 6-7% year-on-year in Q2FY26, marking a sixth straight quarter of sub-10% growth, according to Nuvama Institutional Equities’ calculations. Beyond immediate quarterly slowdowns, the broader outlook for the year also remains tempered: Aon’s latest Annual Salary Increase and Turnover Survey pegs salary growth at about 9% in 2026, marking the weakest projection in 15 years apart from the covid-affected 2020.
This means urban sentiment could weaken further once policy tailwinds fade. Experts warn this could curb borrowing-led consumption too, even if the Reserve Bank of India (RBI) cuts interest rates again in February.
Wage bottleneck
In fact, personal loan growth moderated to 12.8% on-year in November after reaching a one-year high the previous month. Soumyajit Ghosh, chief operating officer at digital lending platform Balancehero India, noted that lower interest rates, easing inflation, and investment gains have boosted disposable incomes and supported borrowing lately.
“Real wages need to increase for borrowings to sustain and expand beyond the upper-income class,” Ghosh said.
He expects discretionary credit demand in rural and lower-income cohorts to stagnate as inflation begins to inch up. India’s consumer price index (CPI) inflation stood at 1.33% in December, up from 0.7% in November.
Sakshi Gupta, principal economist at HDFC Bank, said inflation has likely bottomed out and is expected to settle around 4% in 2026-27. She expects rates to stay on hold through 2026-27, and cautions that monetary conditions may not turn more accommodative going forward.
Against this backdrop, QuantEco expects softer private consumption in the remainder of 2026-26. It projected real gross domestic product (GDP) growth in H2 FY26 to slow to almost 7%, from 8% in H1, reflecting a weaker pace of expansion in manufacturing, construction, trade, hotels and communication services.
From here on, the responsibility of sustained consumption rests squarely on higher employment with higher incomes, noted Bank of Baroda’s Sabnavis.