New Delhi [India], November 8 : Rural India continues to lead the country's consumption recovery, outpacing urban demand despite income tax cuts and GST 2.0 reforms aimed at stimulating city-based spending, according to Motilal Oswal Financial Services Ltd. (MOFSL) in its latest ECOSCOPE report titled "Rural Rules, Urban Follows."
The report noted that rural consumption has been on a steady upward trend since the second half of FY25, strengthening further in 2QFY26 with a 7.7 per cent year-on-year growth, the highest level in 17 quarters.
"We observed that rural consumption continues to outperform urban consumption despite the income tax cuts and GST 2.0 reforms, which are aimed at boosting urban consumption. Undoubtedly, urban consumption has recovered since 22nd Sep'25 and also from 3QFY25; but rural consumption outshines because of income guarantee schemes, better rainfall outcomes, NBFC-led credit growth, easing input costs and steady MSPs," the report added.
This upturn, MOFSL said, was supported by firm growth in real agricultural and non-agricultural wages, higher tractor and fertiliser sales, robust farm credit, and better rainfall distribution that improved sowing activity. Stable minimum support prices (MSPs) and easing input costs also contributed to stronger farm incomes.
In contrast, urban consumption remained subdued in 2QFY26, ahead of the festive season, though indicators such as personal credit growth, petrol demand, and non-farm imports reflected continued resilience in discretionary spending. Passenger traffic, however, stayed largely flat.
MOFSL expects urban demand to improve in 3QFY26, helped by GST 2.0 implementation and the passthrough of recent price cuts. The brokerage's retail channel checks indicate a positive turnaround in select urban categories with autos and jewelry performing well, while footwear, paints, FMCG, and textiles showed mixed recovery trends.
Within FMCG, general trade feedback suggested that demand in October remained largely unchanged, though alternate retail channels may drive future growth divergence across companies.
The report highlighted that October's high-frequency indicators such as e-way bills, petrol consumption, mall footfalls, and PMI readings for manufacturing and services remained strong, underscoring overall consumption momentum.
Looking ahead, the report expects rural demand to sustain its growth trajectory on the back of rising real wages, healthy rabi prospects, and low inflation. Urban demand, meanwhile, is likely to firm up through the festive quarter, led by discretionary categories like jewelry, the report added.
The report maintained its base case for real GDP growth at 6.8 per cent in FY26, with an upside potential of 20-30 basis points if tariff-related uncertainties ease. Nominal GDP growth is projected at 9 per cent, moderated by subdued price pressures across sectors.
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