India's consumption is at a cyclical trough

Private final consumption expenditure (PFCE) has grown 10.4% a year on average since FY18, the slowest sustained stretch in a series that goes back to FY67. FY26 came in at 8.2%. India’s consumption engine, the anchor of its GDP, has spent nearly a decade in the slow lane.

The drags are identifiable. Central government spending on wages and pensions has decelerated since FY22. Labour-intensive exports have been flat for two years. Household construction, the biggest single employment generator, has been weak, with top-7-city real estate sales volumes contracting on a three-year basis. And personal loans (ex-housing) have grown to nearly 17% of GDP from 8% a decade ago, increasingly substituting for income growth rather than adding to it.

What is holding up is the top of the pyramid: non-oil imports, utility vehicle volumes, personal credit and premium urban demand all show parts of the household sector still spending.

The case against writing consumption off is the length of the record. Across six decades, PFCE growth has cycled repeatedly between double-digit booms (FY81–97 averaged near 14%) and long lulls (FY01–05, and now FY18–26). Each lull ended when incomes, credit and confidence lined up, and the current setup has two of the three visibly improving: banking credit is growing ~14% a year with a benign NPA cycle, and rate transmission is underway. The missing piece is broad income growth, which loops back to construction, labour-intensive exports and government capex.

Writing off a six-decade cyclical series at its trough, after its slowest decade on record, is the kind of extrapolation error that markets make at every extreme, in both directions.

What we’ll watch: quarterly PFCE growth against the 10.4% post-FY18 average; wage bill growth for the BSE 500; and housing construction volumes as the income-side signal.