Rural consumption beats urban demand, GDP growth to reach 6.8 pc in FY26: Report

New Delhi, Nov 8 (IANS) Rural consumption continues to outperform urban demand in the country despite income tax cuts and GST 2.0 reforms aimed at boosting urban consumption, a report said on Saturday.

The report from brokerage firm Motilal Oswal Financial Services Limited (MOFSL) said that rural consumption outshines because of income guarantee schemes, better rainfall outcomes, NBFC-led credit growth, easing input costs and steady MSPs.

MOFSL’s base case projection was that real GDP growth will touch 6.8 per cent for FY26, with a 20–30 basis‑point upside if tariff uncertainties abate, and a nominal GDP growth projection at 9 per cent.

It maintained that urban consumption has recovered since implementation of GST reforms and also from Q3FY25, but rural consumption outshined.

The brokerage firm said that rural consumption has been on a steady uptrend since H2FY25, strengthening further in Q2FY26 (up 7.7 per cent YoY) to its highest level in 17 quarters.

"The upturn was supported by firm growth in real agri and non-agri wages, higher tractor and fertilizer sales, and robust farm credit. Better rainfall distribution and reservoir levels boosted sowing activity, while easing input costs and steady minimum support price (MSP) procurement helped improve farm incomes," the firm highlighted.

Regarding rural spending, the report detailed that the high‑frequency October data — including E‑way bills, petrol consumption, mall footfalls and PMI readings — were broadly positive in the first full month of GST 2.0 implementation.

Urban spending remained subdued through Q2 FY26 but improved after GST reforms through the festive season, with jewellery demand staying firm in October despite high gold prices.

"Rural demand is expected to remain on a steady upward trajectory, underpinned by rising real wages. Healthy rabi prospects, coupled with lower rural inflation, should help to sustain the ongoing improvement in consumption," the report noted.

--IANS

aar/na