India's rural economy witnessed a sharp recovery and expansion in the latter half of 2025, driven by rising consumption, improved household incomes and higher investment activity, according to the latest Rural Economic Conditions and Sentiments Survey (RECSS) conducted by NABARD.
As per the November 2025 survey round, nearly 79.2% of rural households reported an increase in consumption expenditure, marking the highest level recorded so far in FY26. This represents a clear improvement over the previous round, where 76.2% of households reported higher spending. The share of monthly income spent on consumption also climbed to 67.3% , the highest since the survey's inception, supported by GST rate rationalisation and easing inflationary pressures.
GST Rate Cuts, Festive Demand Lift Rural Spending
The survey was conducted in the backdrop of GST rate rationalisation announced by the GST Council on September 3, 2025, coinciding with the festive season. While some rural consumers initially deferred purchases in anticipation of revised tax rates, demand picked up sharply after the GST cuts came into effect on September 22. Categories such as household appliances, automobiles and fast-moving consumer goods (FMCG) witnessed a notable boost.
NABARD noted that the combination of lower inflation, reduced tax burden and improved real purchasing power significantly strengthened rural consumption demand. Inflation expectations among rural households eased to 3.77% , falling below the 4% mark for the first time since the survey began, indicating growing confidence in price stability.
Rural Markets Outperform Urban in FMCG Growth
Rural markets continue to play a pivotal role in India's consumption economy, accounting for nearly 38% of packaged consumer goods sales and supporting livelihoods for about two-thirds of the population. Market data show that FMCG demand in rural India outpaced urban markets during the three months ended September 2025.
Rural FMCG volumes grew by 7.7% , compared to 3.7% growth in urban areas, marking the seventh consecutive quarter of rural-led volume expansion. Growth has been particularly strong in smaller pack sizes, reflecting improved affordability and gradual upgradation in consumption patterns across food, personal care and daily-use categories.
Supportive Macroeconomic Trends Strengthen Rural Recovery
The broader macroeconomic environment further supported the rural revival. India's economy recorded a robust 8.2% growth in the July-September 2025 quarter, aided by strong performance in manufacturing, financial services and consumption. Private Final Consumption Expenditure (PFCE) growth rose to 7.9% , up from 7.1% in the previous quarter.
Inflation eased sharply during the period. Retail inflation declined to 1.7% in the September quarter from 2.7% earlier, while wholesale inflation moderated to 0.02% . Food inflation, which carries nearly 40% weight in the CPI basket, remained in deflation for five consecutive months, providing significant relief to rural households.
With declining food prices over four straight months, the share of food expenditure in total monthly consumption increased to 55.4% , the highest across all survey rounds.
Rising Incomes and Positive Outlook Ahead
Income levels also showed marked improvement, with 42.2% of rural households reporting higher income over the past year, the strongest performance in the survey's history. At the same time, the proportion of households witnessing a decline in income fell to its lowest-ever level, highlighting the depth of the rural recovery.
The survey points to a positive outlook for rural demand, supported by stable monsoons, easing inflation, GST reforms and rising real incomes. Rural markets are expected to remain a key driver of consumption growth in the coming years, with spending gradually shifting from subsistence needs to quality and lifestyle upgrades.
Reflecting this trend, FMCG major Hindustan Unilever Ltd (HUL) noted that nearly 40% of its portfolio now falls under the 5% GST slab following recent reforms. The company has announced plans for bolder marketing and channel transformation strategies to deepen its rural market presence.
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