Recovery Route

Tax breaks, falling inflation and rising FMCG sales will boost urban consumption, but concerns over low incomes and job creation remain

- By ADRIJA CHATTERJEE & ISHAAN GERA

INDIA'S URBAN CONSUMPTION has fallen prey to stagnant wages and tighter lending conditions since FY24, but experts indicate that income tax cuts, falling inflation and a long-pending proposal to rationalise GST rates may provide a short-term spurt.

"The cut in income taxes, interest rates and a GST (rejig) would give a boost to urban consumption," says Paras Jasrai, associate director, India Ratings and Research.

The FY26 Budget provided relief for individuals earning up to ₹12 lakh per annum, exempting them from paying income tax under the new regime—a measure aimed to spur consumption.

The government is also working to streamline the Goods & Services Tax by eliminating the 12 percent slab, which would entail reducing rates on many products to 5 percent. The reform is yet to make much progress.

SIGNS OF RECOVERY?

There are some signs of a pickup in the economy and optimism around a sustained recovery. In Q1FY26, fast-moving consumer goods (FMCG) sales in urban India grew 7.7 percent, marginally outpacing rural growth of 7.1 percent for the first time in six quarters, according to market intelligence firm Bizom. "The tide seems to be turning; FMCG sales were driven by demand for branded commodities, personal care and dairy products," Jasrai says.

One of India's largest FMCG firms, ITC echoes the sentiment. "Going forward, we expect consumption expenditure to pick up, progressively led by continued recovery in rural demand backed by a good monsoon, along with improvement in urban demand as inflation stabilises and tax cuts announced in the Union Budget boost disposable incomes," an ITC spokesperson told Moneycontrol.