Consumption loans, which previously offset income sluggishness, have also slowed, dropping from 25% growth in FY24 to 15% in FY25

ANI New Delhi

India's economy is navigating a phase of subdued demand as growth in key sectors slows down. Multiple dynamics impact exports, consumption cycles, and income growth, pointing to a challenging outlook for FY26 says a report by Nuvama.

The report identifies four factors – wealth effect, incomes, leverage, and fiscal transfers – as key drivers of consumption cycles. Over the past two decades, these drivers have influenced consumption across distinct phases, including periods of broad-based growth and K-shaped recovery.

In FY25, all these drivers have shown signs of weakness. Household income growth has slowed, with rural wage growth remaining stagnant and organised sector wage growth decelerating. 

Consumption loans, which previously offset income sluggishness, have also slowed, dropping from 25 per cent growth in FY24 to 15 per cent in FY25.

The income outlook for both rural and urban households remains bleak for FY26, with consumption loans likely to remain subdued.

However, fiscal transfers may provide some relief, particularly for middle- and lower-income households. "While this fiscal spending tilt might come at the cost of capex, it would help support consumption, particularly at the lower-end." says the report.

It also adds that rural consumption may increase as it was weak for few years but urban consumption may further slow down.

"Upper-end consumption may slow further after four years of a strong run," the report quoted.

State governments have already increased social sector spending and the central government is expected to follow suit, potentially boosting rural consumption.

The Indian economy has seen a sharp slowdown, with real GDP growth falling from 8.2 per cent in FY24 to 6 per cent in the first half of FY25. The report highlights a convergence in real and nominal GDP growth trends, reflecting weaker aggregate demand.