Rural demand surge: Countryside drives India’s consumption rebound; urban growth seen picking up in Q3 FY26
According to MOFSL’s latest ECOSCOPE report titled “Rural Rules, Urban Follows,” rural consumption rose 7.7 per cent year-on-year in the second quarter of FY26 — the highest 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,” the report stated.MOFSL attributed this steady uptrend to a combination of supportive factors, including rising real agricultural and non-agricultural wages, robust farm credit, higher tractor and fertiliser sales, improved rainfall distribution, and stable minimum support prices (MSPs).
It added that easing input costs have further strengthened farm incomes, enabling sustained spending power in rural regions.Urban consumption, however, remained muted in the same period ahead of the festive season.
Nonetheless, as per news agency ANI, indicators such as personal credit expansion, petrol consumption, and non-farm imports pointed to continued resilience in discretionary spending, even though passenger traffic stayed largely flat.The report anticipates urban demand to gain momentum in the third quarter of FY26, supported by GST 2.0 implementation and recent price reductions.
Channel checks by the brokerage suggested a mixed recovery across retail categories — autos and jewellery showed improvement, while footwear, paints, FMCG and textiles posted uneven trends.Within FMCG, general trade demand in October remained stable, but MOFSL noted that alternative retail formats could drive growth divergence across firms in the months ahead.The report also pointed to strong high-frequency indicators in October, including e-way bill generation, petrol usage, mall footfalls and PMI readings, signalling sustained consumption momentum across sectors.Looking ahead, MOFSL expects rural demand to maintain its strong growth path, supported by higher real wages, favourable rabi prospects, and controlled inflation.
Urban consumption, meanwhile, is projected to strengthen during the festive quarter, led by discretionary categories such as jewellery.The brokerage maintained its baseline projection for real GDP growth at 6.8 per cent in FY26, with nominal growth estimated at 9 per cent.
It added that easing tariff-related uncertainties could lift real GDP growth by an additional 20–30 basis points.
