Rural Consumption Surpasses Urban Demand; India’s GDP Growth Seen at 6.8% in FY26: Report

New Delhi – Despite government measures such as income tax cuts and the rollout of GST 2.0 aimed at stimulating urban spending, rural consumption continues to outperform urban demand across India, according to a report by Motilal Oswal Financial Services Limited (MOFSL) released on Saturday.

The brokerage firm attributed the robust rural momentum to income guarantee schemes, favourable monsoon patterns, NBFC-led credit expansion, lower input costs, and stable minimum support prices (MSPs).

In its latest projections, MOFSL forecast that real GDP growth will reach 6.8% in FY26, with a potential upside of 20–30 basis points if trade and tariff uncertainties ease. Nominal GDP growth is expected to hover around 9%.

While the report acknowledged that urban consumption has shown improvement since the implementation of GST reforms and gained pace from Q3 FY25, it emphasised that rural demand has been consistently stronger.

According to the findings, rural consumption accelerated through H2 FY25 and strengthened further in Q2 FY26, registering a 7.7% year-on-year rise, marking its highest growth in 17 quarters.

“The upturn was supported by firm growth in real agricultural and non-agricultural wages, higher tractor and fertilizer sales, and robust farm credit. Better rainfall distribution and healthy reservoir levels boosted sowing activity, while easing input costs and steady MSP procurement improved farm incomes,” the report stated.

High-frequency indicators for October — including E-way bill generation, petrol consumption, mall footfalls, and PMI readings — also remained positive in the first full month following the GST 2.0 rollout.

Urban spending, though subdued through Q2 FY26, showed signs of recovery during the festive season, with strong jewellery sales in October despite elevated gold prices.

Looking ahead, MOFSL expects rural demand to maintain its growth trajectory, driven by rising real wages, healthy rabi prospects, and lower rural inflation — factors that are likely to sustain the ongoing improvement in consumption patterns.

With inputs from IANS