Phenomenal Unleashing of Consumption

This analysis argues that a consumer-based assessment of consumption growth offers a better explanation than company performance assessments. It examines the three major drivers of household consumption growth:

• Higher income from earnings, borrowing, or welfare.
• Decreased prices of desired goods or cheaper loan costs.
• Improved economic environment enhancing spending confidence.

Impact of GST Rate Cuts

Recent cuts in GST rates have reduced prices widely, benefiting all economic segments and incentivizing both high-income heavy spenders and modest-income consumers. This effect is compounded by a low inflation environment and potentially lower borrowing costs, enhancing consumption during the festival season.

Corporate Behavior and Economic Sentiment

• Companies display bullish behavior, investing in marketing, and absorbing material cost increases to boost revenue.
• Urban consumer confidence, as measured by the RBI Urban Consumer Confidence Survey, shows improvement, though perceptions of the current economic situation remain negative.
• Income perceptions have turned positive since March 2025, aiding upper-income consumption.

Rural Consumption Dynamics

• RBI Rural Consumer Confidence Survey shows slight positivity in economic and employment perceptions, with mild negative income perceptions improving since January 2025.
• Nabard RECS indicates strong income improvements and infrastructure developments, with a significant percentage of households receiving government subsidies.
• GST-led price reductions could boost rural consumption further, especially among upper-income rural consumers.

Consumer Choices and Market Trends

• Consumer durables likely to gain, especially among upper-middle to high-income buyers.
• Modest-income consumers are encouraged to spend more due to price cuts.
• Travel and entertainment emerge as aspirational categories, with premium services appealing to upper-income households.
• Cross-category competition will intensify, with savings from basic goods potentially funding other expenses or borrowings.

Note: The views expressed are personal opinions of the author and do not reflect the opinions of Business Standard.