Consumption likely to lead India's growth in 2026 as capex remains subdued: Report

New Delhi [India], January 5 : Consumption in India's domestic economy is expected to continue outpacing capital expenditure (capex) in 2026, supported by a fiscal policy pivot towards consumption and a revival in credit, even as corporate investment sentiment remains cautious, according to a report by Nuvama.

The report noted that consumption is likely to stay ahead of capex in 2026 for three key reasons.

First, during periods of slower economic growth, consumption typically performs better than capex. Second, fiscal policy has clearly shifted towards supporting consumption, a trend also reflected in the ongoing credit revival. Third, although consumption may not see a sharp acceleration due to weak income dynamics, demand from lower- and middle-income segments is expected to remain relatively stronger than that from higher-income groups.

"Consumption over capex, in 2026, consumption should continue outpacing capex," the report stated.

It highlighted that income growth remains subdued and the wealth effect has moderated, limiting the pace of consumption growth. As a result, consumption in FY26 is likely to be driven largely by leverage and government transfers rather than a broad-based improvement in household incomes.

Despite these constraints, stronger demand from lower- and middle-income households is expected to help consumption outperform capex.

Consumption and capex are India's twin engines of economic growth, with household spending driving demand, while investment in infrastructure and manufacturing expands supply capacity, generates employment, and supports income growth, creating a virtuous cycle essential for sustained economic expansion.

On the investment front, the report indicated that capex is likely to remain subdued through 2026. Limited fiscal space is expected to constrain the government's ability to significantly increase public capex, while large corporates are slowing investment plans amid weak revenues and profitability, reflecting a cautious stance towards new projects.

Household-led capex is also showing signs of moderation. The report observed that high-end and premium real estate has entered a soft patch, further weighing on overall investment activity. This softness in real estate, combined with corporate caution, is expected to keep capex in the slow lane during the year.

The report also pointed to some support for lower-income consumption from a recent increase in state government transfers. In particular, women-focused schemes providing direct benefit payouts are offering a cushion to consumption at the lower end of the income spectrum.

However, it cautioned that these transfers may be funded by slower spending in other areas, especially capex.

Overall, the report noted that consumption is likely to continue outpacing capex in 2026, with demand strength concentrated in lower- and middle-income segments, while investment activity remains restrained due to limited fiscal headroom and cautious corporate sentiment.

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