Can festivities lift the mood of India’s consumers?
James Thom and Rita Tahilramani, Co-Managers of abrdn New India Investment Trust, explore how seasonal optimism, policy reforms, and easing inflation could influence consumer sentiment and spending.
Date: 20 Oct 2025
As India enters its festive season, hopes are high that celebrations will rekindle consumer spending and, in turn, boost economic growth. Festivals such as Diwali and Dussehra have typically been catalysts for discretionary purchases, from gold and cars to electronics and apparel. But will this year’s festivities be enough to get consumption, which has had a patchy post-pandemic recovery, back on track?
The government has rolled out several measures to try and stimulate demand. Earlier this year, the Union Budget for the current fiscal year introduced income tax cuts to boost disposable incomes, particularly for the middle class. More recently, in September and just ahead of the festive season, policymakers went a step further by overhauling the Goods and Services Tax (GST) framework, by reducing the number of tax slabs from four to two.
Chart 1: Simplified GST rates to make products more affordable
| Key categories | From | To |
|---|---|---|
| Daily Essentials | 12%-18% | 5% |
| Healthcare | 12%-18% | 5% |
| Individual Health & Life Insurance | 18% | NIL |
| 33 Life-Saving Drugs, Diagnostic Kits | 12% | NIL |
| Education | 5%-12% | NIL |
| Agriculture | 12%-18% | 5% |
| Automobiles | 28% | 18% |
| Electronic Appliances | 28% | 18% |
| Cement | 28% | 18% |
| Non-Cement Construction Materials | 12% | 5% |
| Services Sector | 12%-18% | 5% |
| Tobacco Products | 40% | 40% |
Source: Press Information Bureau, Morgan Stanley Research, Aberdeen, September 2025.
At the same time, the Reserve Bank of India has eased interest rates, with legroom to cut further as inflation has cooled sharply, thanks largely to falling food prices. Headline CPI inflation slowed from a peak of 6.2% year-on-year in October 2024 to 2.1% in August 2025, driven largely by easing food and energy prices. As a result, real income growth has improved, which can support stronger consumption growth.
On the other hand, rate cuts are expected to help improve the affordability of durable goods and potentially spur demand for housing and other big-ticket items, such as automobiles. The lower cost of borrowing further frees up household budgets for other discretionary spending.
Chart 2: Consumption could be the key growth driver ahead
All these measures together are expected to potentially boost consumer sentiment and spending, particularly in discretionary categories. Recovery in private consumption, which accounts for about 60% of India’s GDP , following the pandemic had been rather uneven.
Much of India’s post-pandemic growth has mostly been led by government-led infrastructure investments. Massive outlays on roads, railways, and energy projects have supported GDP, but public spending on infrastructure has seen some moderation.
Retailers and FMCG companies are banking on festive demand to clear inventories. Some early indicators appear encouraging, such as in pre-festive e-commerce sales and auto bookings as well as better credit card spending compared to a year ago (Table 1). But other segments continue to see softer demand. The true impact of the GST reform would likely come through in economic data released over the next few quarters due to a transmission lag, as with most policy moves.
Table 1: Stronger auto sales and credit card spending over the festive period
| 2024 | 2025 | ||
|---|---|---|---|
| 3 Oct-16 Oct | 22 Sep-5Oct | YoY (%) | |
| Total Autos, (thousand) | 1203 | 1415 | 17.6% |
| Passenger Vehicles (thousand) | 209 | 250 | 19.5% |
| Two Wheelers (thousand) | 880 | 1046 | 18.9% |
| Credit Cards, Daily Avg, INR (billions) | 54 | 67 | 24.0% |
Source: MS Autos team, RBI, Morgan Stanley Research, 7 October 2025.
That said, a robust and sustainable consumption recovery remains contingent on marked improvement in labour market conditions, including wage growth. Data suggests a continued uptick in real wage growth for agriculture and non-agriculture segments, and along with above average monsoons and a stronger Rabi output, the situation bodes well for India’s rural demand, albeit some near-term challenges. However, subdued job growth may continue to be a headwind for urban demand over the near-term.
Despite the slow, uneven near-term recovery in consumption, India’s long-term structural growth remains intact, supported by a growing aspirational middle class and one of the largest consumption markets outside the US and China. This is underpinned by a decade of painful but necessary economic reforms that have lowered the cost of doing business in India significantly, with multinationals relocating back-office functions to leverage India’s skilled yet cost-effective labour pool.
For investors, this translates into access to well-run companies with robust balance sheets, stable and predictable cashflows, relatively healthy corporate earnings growth, and competent management teams. India also offers a diverse investment universe and a market that does not always move in lockstep with global markets. Corporate governance is improving, with companies adopting industry best practices around financial disclosures, such as quarterly earnings reported in English, better treatment of minority shareholders, and increased attention to ESG and sustainability.
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