Why The Current Demand Recovery Rings Hollow 

Rural demand in India is showing flickers of life, but the foundation remains too brittle for optimism. Real rural wages saw a 2.3% rise in February 2025, their strongest performance since May 2019. Yet, over a six-month horizon, the average gain is a meagre 0.7%, suggesting the recent upturn may be fleeting. Nominal wage growth remains stuck at 6%, unchanged for a year, while the tailwind from easing rural inflation—down to 3.8% in February—is unlikely to hold steady through the agricultural cycle. 

Government-backed employment through MNREGA offers a starker contrast. Real wages here jumped 5.7% in January and February, bolstered not only by easing prices but a notable acceleration in nominal wages to 9-10%. But much of this can be explained by election-linked disbursements and delays in inflation indexation rather than structural improvements in labour markets or farm incomes. 

Income Squeeze
Beyond wages, the broader income story in rural India remains discouraging. According to NABARD’s March 2025 rural tracker, just 34.8% of households reported an increase in income, down from 36% in January. Meanwhile, those reporting a decline ticked up to 23.3%. Consumption patterns are incongruent with this income strain—nearly 80% of households report increased spending, a figure that hasn’t budged, underscoring the inflation-stickiness in essentials. 

The RBI’s consumer sentiment survey adds a further layer of complexity. While overall sentiment in rural areas improved modestly, with 6.9% of respondents seeing better economic prospects and 4.7% reporting improved employment, the income narrative remains grim. A net -4.8% reported worsening income, and nearly half the households have seen stagnant earnings since September 2023. 

This divergence between employment sentiment and income reality points to a mismatch—more jobs, perhaps, but not better ones. Spending resilience, meanwhile, is primarily essentials-led: 88% of respondents reported a rise in essential purchases, while non-essential spending remained moderate at 58.3%.

Agriculture presents a mixed picture. Pre-monsoon rains and reservoir levels are supportive, and a robust kharif season is anticipated with rainfall pegged at 106% of the long-period average. Tractor sales, a proxy for rural capex sentiment, rose 5.2% year-on-year, while foodgrain and oilseed output are projected to grow by 6.5% and 7.4%, respectively.

However, prices are not playing along. Wheat mandi prices have dropped 15%, rice by 1%, muting the upside for farmers despite record production. The problem is not yield but monetisation. Wheat procurement has risen marginally, but unless this is backed by remunerative pricing, the net income impact remains limited. 

The disconnect explains why real agricultural GDP grew 5.4% in the March quarter and averaged 4.6% for 2024-25, but rural incomes failed to respond in kind. In short: volume without value.   

Urban Stall 
Urban India, meanwhile, offers no counterweight. Despite easing inflation, urban consumption remains stubbornly weak, with discretionary spending yet to recover to pre-pandemic levels. The RBI’s May 2025 Urban Consumer Confidence Survey marked the tenth straight month of negative sentiment. Employment perception, while marginally better than earlier months, remains pessimistic, with a net score of -5.9%. Income sentiment is flat—just 24.1% report higher incomes—while 91% continue to cite high prices as a burden. 

Even with inflation tapering off, spending remains elevated, particularly on essentials. Non-essential spending, however, is slipping—down to 27.8% in May from 30.2% in November 2024. Incomes are not keeping pace with costs, and inflation moderation has not translated into real purchasing power. 

The private sector, too, reflects this tepid reality. Corporate compensation growth remains muted—7.8% in January-March 2025 versus a 24-year average of 12%. Real wage growth has edged up to 4.2% but is still far from its post-COVID peak of 7.4%.  

Meanwhile, fiscal consolidation is weighing on sentiment and spending alike. Government revenue expenditure (excluding interest) contracted 9.5% in the three months to April 2025, a sharp pivot from October’s 23.6% expansion. That drag is evident in both household consumption and corporate sales growth. 

Signs of strain are everywhere in discretionary categories. Passenger vehicle sales rose by 5.5% in April, largely on the back of higher-end multi-utility vehicles. But value segment car sales fell 5.4%. Two-wheeler sales—a barometer of middle-income consumption—dropped 11.8%. 

Consumer durables are faring no better: AC sales fell 7.9%, refrigerator sales barely rose, and both categories are seeing negative or negligible five-year CAGR growth. 

Outbound travel has also cooled, growing only 7% year-on-year in December, sharply lower from 21.2% a year ago. A five-year CAGR of 2% suggests that even affluent urban consumption is under pressure. 

Retail bank lending, long the backbone of consumption, is slowing. Growth has dropped to 14.5% YoY (Ex-HDFC) in April from a peak of 21.3% in June 2023. This slowdown is broad-based—credit card growth is down to 10.6%, auto loans at 8.8%, mortgages at 14.7%. Loans against jewellery, however, have surged 107.6%, pointing to increased household financial stress. 

The RBI’s recent moves—rate cuts, CRR easing, and looser lending norms—are aimed at sparking leveraged consumption. But with household debt at 52% of disposable income, and stagnant income growth, the ability to borrow and spend remains constrained. 

Corporate Check 
Consumer goods companies echo the caution. Staples grew just 6% in revenue and 3% in volume in the March quarter. Margins were squeezed, and profits flat or falling. Rural markets held steadier than urban, but not by much. 

In discretionary, the story is mixed. Value retail, jewellery, and alcohol showed strength, but QSRs and premium apparel struggled. EBITDA improvements in select firms like ABFRL were offset by weak showings at DMart and Raymond Lifestyle.

The common thread across both staples and discretionary segments: value is winning, while premium falters.