India’s Consumption Comeback Story Is Built On Shaky Ground

Equity markets* have rebounded smartly after a five-month slide, fuelled by expectations of a consumption revival. Optimism hinges on real GDP accelerating to 7.6% in the fourth quarter of 2024–25, led by a projected surge in private consumption. But beneath the surface, household finances remain fragile and growth in demand elusive.

The implied 9.9% consumption growth for the March quarter, following an average of 7% in the first three quarters, looks increasingly unrealistic. Rural wages, urban sentiment, discretionary spending and employment trends all point to a subdued household economy. The consumption narrative the market is betting on may not hold up.

Start with the countryside. Real rural wages rose just 0.3% in November 2024 and have remained largely flat for two years, mirroring stagnation in MNREGA payouts. On paper, agriculture is booming. The second advance estimates peg rabi foodgrain output at 164.5 million tonnes—up 2.8% from last year. Wheat alone is forecast at 115.4 million tonnes, with prices 29% above the minimum support price. Yet these gains have not translated into broader income growth. For years, rural households have struggled to convert agricultural gains into spending power.

Urban sentiment shows little improvement. The RBI’s February consumer confidence survey recorded a net employment sentiment score of -8.2, the weakest in six months. Income expectations dipped further into negative territory. While 77.9% of urban households reported increased spending, this was more a reflection of inflation than confidence. Households appear cautious, limiting discretionary outlays amid economic uncertainty.

Spending indicators reinforce the message. Passenger vehicle sales grew just 3.7% in February, while two-wheeler sales contracted by 3.9%. Outbound travel slowed to 7% in December 2024 from more than 21% a year earlier. Retail loan growth fell to 14% in January from a post-COVID peak of over 21% in mid-2023. Credit card and personal loan growth also weakened. One segment that did surge—loans against jewellery, up nearly 90% year on year in January 2025 —signals deepening household distress.

Labour market data offers no comfort. The urban Periodic Labour Force Survey for the October–December quarter shows participation rates plateauing, but quality of employment slipping. Male employment rose marginally, driven largely by self-employment. Manufacturing jobs continued to shrink, while gains in services were modest. Unemployment among men edged up to 5.8% as more people entered the workforce than found jobs.

This is not the profile of a consumption-driven recovery. Even as inflation softens, incomes—particularly in the informal and lower-income segments—have not kept pace. Consumer goods companies are already flagging flat or low-single-digit volume growth in the March quarter. Downtrading to smaller packs and weaker uptake of premium offerings continue. Price hikes are failing to keep up with input costs, squeezing margins further.

The disconnect between official projections and on-the-ground realities is widening. Agricultural output and headline GDP may be buoyant, but until household incomes—rural and urban—see broad-based recovery, a true demand revival will remain out of reach.
For investors, the risk is clear. The equity rebound is riding on a shaky consumption thesis. Without a material improvement in real incomes and job creation, the expected earnings lift from household demand may not materialise.

Household sentiment about the general economic situation remain in the downward trend (-8%)

Continued pessimistic sentiments on the employment scenario (-8.2%)

*This is the first of a two-part series examining whether India’s equity rebound is grounded in economic reality.