India Ratings sees rise in private consumption led by rural demand

India Ratings and Research expects a rise in private consumption in FY25, led by a volume-led recovery in rural demand. While growth rates would remain polarised with premium products and services showing higher growth rates than the value segment (i.e., K-shaped recovery), the growth disparity would moderate in FY25, exhibiting slightly more broad-based growth contours, the agency said.

After a weak FY24, the recovery in rural demand in FY25 would be led by the expectations of a normal monsoon and moderating inflation, which would support volume growth in the staples category.

As urban and discretionary segments are showing early signs of moderation in growth, a recovery in rural consumption remains crucial for FY25.


“Private consumption is likely to recover in FY25 as likely normal monsoon and moderating inflation would support volume growth in rural India,” said Prashant Tarwadi, Director, Large Corporates at the rating agency.

“The growth differential between staples and discretionary may come further down, given that rural market (more staple focused) is likely to recover, while the urban market growth may continue to moderate.”

The overall consumption growth in FY24 was mostly price-led and inflationary, with results of large consumer players showing nil to lower single-digit volume growth, according to India Ratings.

Consumption growth plummeted to 4.0% in FY24 due to the weak rural demand. Rural wage growth lagged inflation, leading to a decline in the purchasing power and subsequently lower consumption.

“Moreover, rural – urban inflation distribution is concerning, given that rural wage growth is perennially facing higher inflationary pressure versus urban (owing to higher food CPI), amplifying a negative impact on consumption,” India Ratings said.

However, the agency believes the positive real wage growth in the past few months along with the expectation of a normal monsoon may support rural demand in FY25.

Additional levers to rural demand - income repatriation (from urban areas) and stable labour income (amid government capex) - would lead to a gradual recovery in the rural demand. Urban demand may also continue to grow, albeit at a slower pace than in FY21-FY24, reducing the growth disparity between urban and rural.