India’s consumption story and the underlying wage growth problem, Pg15

Key Highlights:

• India's consumption in 2025-26 was supported by income tax rate cuts and GST rationalization.
• Demand for consumer durables increased post-GST cuts, with loan demand rising 1.5 times during the Dussehra-Diwali festival window.
• Retail inflation hit a record low of 0.25% in October, but tax cuts may not have been fully passed to consumers.
• Real rural wage growth rose to 4.1% in the first quarter of 2025-26, driven by a sharp fall in inflation.

Detailed Insights:

• The RBI's Consumer Confidence Survey indicates that while overall consumer confidence improved, rural households reported deteriorated perceptions about current income and spending in November.
• Real urban wage growth, proxied by staff costs of listed companies, reached 5.7% in July-September 2025 due to low inflation.
• Nominal wage growth needs to align with rising inflation to sustain rural demand, especially concerning core inflation and potential adverse effects of prolonged deflation in food prices.
• Household financial liabilities increased from 3.9% of GDP in 2019-20 to 6.2% in 2023-24, before declining to 4.7% in 2024-25, indicating increased borrowing.
• Private investment remains subdued due to unclear foundations of future demand and concerns about household balance sheets.
• The financial situation of Indian households worsened post-pandemic, leading to increased borrowing and a rise in real household debt relative to income.

Key Concepts Involved:

• GST (Goods and Services Tax): An indirect tax levied on the supply of goods and services.
• CPI (Consumer Price Index): A measure of the average change over time in the prices paid by urban consumers for a basket of consumer goods and services.
• Real Wage Growth: The increase in wages after adjusting for inflation, reflecting the actual purchasing power of earnings.