According to official data, the Indian economy grew 7.7% in 2025-26 and 7.8% year-on-year in the April-June quarter of 2026-27. These numbers have been hotly debated; an often-heard argument is that growth “feels” much lower. In other words, ground realities appear to diverge from the robust growth reported in official data.

Official growth depends on data and statistical methodology, while “felt” growth is driven by individual perceptions and experiences. Qualitative surveys of households provide a way to bridge these divergent measures. By systematically collecting households’ views on economic variables and converting them into usable numerical data, these surveys quantify “felt” variables within a statistical framework.

The Reserve Bank of India carries out two bimonthly surveys of consumer confidence: the urban survey has been running since 2010, while the rural survey started in September 2023. Both surveys collect responses on six variables: general economic situation, employment, incomes, price levels, inflation and spending.

For each variable, respondents record their perceptions relative to a year ago and expectations for a year ahead, choosing between three response options: improved, remained the same and worsened. The average net response is then used to construct two indices of consumer confidence: a current situation index and a future expectations index.

Sentiment as a Growth Signal

By definition, the current situation index should be a good proxy for how households feel about the economy at a given point in time. Survey data suggest that households’ assessment of the economic environment can be accurate: since September 2012, the urban index has dipped sharply twice, following the May 2013 taper tantrum and during the pandemic. Both were periods of mounting pressure from rising prices, uncertain incomes and job losses.

While it is not unusual for consumer confidence to plunge during a crisis, the surprising finding is that the index tracks real GDP growth reasonably well over more than a decade of growth cycles. Indeed, since the surveys are conducted bimonthly and GDP data is released quarterly, the index can function as a higher-frequency indicator of growth.

By this logic, the sharp fall in both rural and urban current situation indices since January 2026 is concerning, as it could signal a moderation in GDP growth. To understand why households perceive themselves as being worse off than a year ago, it is useful to break the index into its components.

Intuitively, one would expect inflation to be a key driver of consumer sentiment, given that Indian households are known to be sensitive to rising prices. However, various surveys, including the RBI’s inflation expectations survey, show that households perceive inflation to be much higher than the official rate.

As a result, some degree of inflation pessimism is usually factored into responses. That’s why an overwhelming share of respondents, 80-90% on average, always report rising prices, with this share spiking when inflation rises suddenly. For instance, the unexpected fuel shortages and resulting rise in prices in the aftermath of the Iran war significantly pulled down consumer sentiment in urban areas.

On the other hand, rural respondents reported a relatively larger decline in incomes: nearly 30% felt that incomes had decreased in July 2026, compared with 26% in January 2026. This is supported by CMIE data, which showed that real rural wages fell more than urban wages during April-July 2026 owing to delayed kharif planting and inflation. This could also explain why spending intentions dropped relatively more in rural areas.

Among urban households, roughly equal shares of respondents reported rising and falling incomes, about 22-25%, and spending remained stable in the first half of 2026.

Jobs Drive the Disconnect

But the biggest drag came from the remaining two variables. Across households, there was a steep deterioration in perceptions of the general economic situation and employment. The first is a catch-all variable that can include factors ranging from safety and road conditions to urban planning, transport and the quality of public services. The second focuses on the respondent’s view of the current employment scenario.

By July 2026, roughly half the surveyed households in urban areas and 38% in rural areas felt that the employment situation had worsened, up from 42% and 31%, respectively, in January 2026. Similarly, 51% of urban respondents and 42% of rural respondents reported a worsening of general economic conditions, an increase of about 10 percentage points from the respective shares in January 2026.

An analysis of past responses shows that employment perceptions closely track perceptions of the general economic situation. In fact, co-movement between the two has increased since 2020. So when both are declining, with people feeling worse about the economic situation and their jobs, the impact is doubly negative.

Effectively, the divergence between actual and felt growth appears to be driven mainly by weakening perceptions of employment and the general economic situation.

These insights are not new. A study by Azim Premji University in March showed that India produced an average of 5 million graduates each year between 2004 and 2023, but graduate employment grew by only 2.8 million annually. The government has offered initiatives to promote job creation and support labour-intensive industries, but the problem persists.

Indeed, the nationwide protests over examination paper leaks in July largely stemmed from dissatisfaction with the education system and employment opportunities. Recent consumer surveys draw renewed attention to this issue by highlighting the role of employment as a crucial link between actual and felt growth.

While qualitative indices cannot substitute for official data, they can provide early signals of economic sentiment by tapping directly into household perceptions. Ultimately, how growth is experienced will depend not only on the pace of growth, but also on the quality and availability of jobs it creates.