Consumer Confidence in India | 03 Feb 2026

Source: IE 

Why in News? 

Following major policy reforms—lower income tax rates and a rationalised GST—consumption, the bedrock of economic growth, appears resilient, though underlying stresses continue to persist beneath the surface of renewed consumer confidence. 

What Factors have Supported Consumer Confidence in the Recent Past?

• Surge in Durable Goods: GST rate cuts helped push headline retail inflation to a record low of 0.25% in October 2025, making goods and services cheaper. As a result, during the Dussehra-Diwali festival window in 2025, demand for consumer durable loans was about 1.5 times higher than the previous year, signalling renewed consumer confidence. 
• Rising Rural Wages: After averaging zero for 3 years, real rural wage growth (adjusted for inflation) rose to 4.1% in Q1 (April-June) of 2025-26. This rebound was primarily driven by a sharp fall in rural CPI inflation to 2.4% (April-June 2025), down from 5.5% a year ago. Nominal wage growth was 6.5%—the highest since mid-2023. 
• Urban Wage Growth: A proxy for urban wages—the growth in staff costs of listed companies—showed real growth of 5.7% in July-September 2025, the highest in over 2 years. Again, this was aided by low urban inflation (2.1%).   
• Existing Support in the Pipeline: The 125 basis points of RBI rate cuts in 2025 are still transmitting through the economy, which will continue to support demand. 

What Concerns are Associated with Consumer Confidence in India? 

• Deteriorating Household Balance Sheets: Household financial liabilities rose from 3.9% of GDP in 2019-20 to 6.2% in 2023-24, before a slight decline to 4.7% in 2024-25. Net financial assets had hit a multi-decade low of 4.9% of GDP in 2022-23. Between FY09 and FY23, real personal bank debt rose 2.9 times while industrial wages rose only 1.9 times.   
  • This has strained household balance sheets, leading to higher debt servicing costs and reduced capacity for consumption, particularly in urban areas. 
• Unsustainable Income Growth: The recent rebound in real rural wages is largely due to a sharp fall in inflation, not a strong rise in nominal incomes. If food prices remain in deflation, farmers' incomes could suffer, undermining demand. Nominal urban wage growth has been stuck at the same level since mid-2023.  
  • This limits disposable income and constrains spending on both essentials and discretionary items.  
• Income and Consumption Inequality: India's economic recovery exhibits K-shaped pattern, where affluent households drive premium and discretionary spending, while lower- and middle-income groups face stagnation or declining purchasing power. It narrows the broad consumer base and limits overall demand expansion. 
  • A K-shaped pattern is an uneven economic recovery where some sectors or income groups grow rapidly while others continue to decline, worsening inequality. 
• Broader Structural Issues: Declining household savings rates, reduced spending shares on education (potentially impacting future employability), and reliance on debt-financed consumption raise sustainability concerns. Additionally, shifts toward ultra-processed foods and health-related expenditures reflect changing patterns with potential negative implications for well-being. 

What Steps are Needed to Maintain a Sustainable Consumer Confidence in India? 

• Secure & Boost Household Incomes: Shift policy to labor-intensive exports, ensure real wage growth via productivity-linked hikes, and strengthen farming beyond Minimum Support Price (MSP) with supply chain investment to boost job quality and incomes. 
• Rebuild Household Financial Buffers: Incentivize financial savings for positive real returns, enforce RBI's macroprudential norms on unsecured loans and financial literacy, and expand social security coverage (health, pensions) to reduce precautionary saving. 
• Ensure Price Stability & Predictability: Maintain a benign inflation regime with proactive food price management and ensure transparent, stable tax policy (GST, direct taxes) for long-term household planning. 
• Foster Broad-Based, Inclusive Growth: Bridge the rural-urban divide with targeted infrastructure and support MSMEs via credit and global value chain integration to counter a K-shaped recovery. 
• Strategic & Credible Fiscal Policy: Balance capital expenditure (capex) with human capital investment, commit to fiscal prudence to build buffers for counter-cyclical measures, and catalyze private investment with policy certainty. 

Conclusion 

While recent policy stimulus and low inflation have buoyed short-term consumption, India’s consumer confidence faces long-term stress from eroding household savings, rising debt, and uneven income growth. Sustainable confidence hinges on structural reforms that boost secure incomes, rebuild financial buffers, and ensure broad-based, inclusive economic expansion.