The disposable income of Indian households is set to be “significantly higher” in the current year compared to last year thanks to a combination of lower inflation and tax cuts already announced by the government and likely to be announced in the near future, Chief Economic Advisor V Anantha Nageswaran said on Friday. “…the fact that there was a significant direct tax cut announced in the Budget and the possibilities of lower GST coming up in the coming month, along with the fact that overall inflation rate has already been low, means that disposable income in the hands of Indian consumers and households is going to be significantly higher this year compared to last year,” Nageswaran told reporters after data from the statistics ministry showed India’s GDP growth in April-June beat all expectations by coming in at a five-quarter high of 7.8 per cent. The comments by the government’s top economist come at a time when worries have mounted over the condition of urban demand, although rural demand has been resilient due to a good monsoon. In the minutes of the August 4-6 meeting of the Reserve Bank of India’s (RBI) Monetary Policy Committee (MPC), multiple members – including Governor Sanjay Malhotra – voiced concerns over the sluggishness of urban demand. However, Nageswaran argued on Friday that urban consumption “hasn’t been as weak because we have been looking at the wrong indicators”. Citing merchant-wise Unified Payments Interface (UPI) payments data recently published by the National Payments Corporation of India (NPCI), the Chief Economic Advisor said payments for most merchant categories had grown at a very high rate. “So, this tells us that we need to be looking at digital sales and digital transactions of services to get a better sense of what is happening to private consumption rather than looking at conventional survey-based indicators. This should allay concerns about urban consumption growth,” he said. Countering US tariffs With the tariff on Indian goods entering the US doubling to 50 per cent from August 27, policymakers are scrambling to offset the hit to key sectors such as textiles. A fall in exports to the US could hurt incomes of those working in these labour-intensive sectors. “The 50 per cent US tariff imposition will start to feed through exports and have a domino effect on employment, wages, and private consumption – further dampening private investment outlook and hinder growth,” Madhavi Arora, Chief Economist at Emkay Global Financial Services, said on Friday. In the 2025-26 Union Budget, presented on February 1, Finance Minister Nirmala Sitharaman had announced a reduction in income tax rates under the new regime, with the Centre estimating a revenue loss of around Rs 1 lakh crore from the move. This was followed by Prime Minister Narendra Modi, in his Independence Day speech, announcing a host of reforms, including the long-awaited rationalisation of Goods and Services Tax (GST) rates, which economists predict will lower inflation, boost consumption, and push economic growth higher. The GST Council is set to meet on September 3-4. Meanwhile, retail inflation has dropped sharply in recent months, coming in at an eight-year low of 1.55 per cent in July, below the lower-bound of the RBI’s tolerance range of 2-6 per cent. Rural-urban divide The GDP data released Friday showed reasonable growth in private consumption in April-June. While lower than the 8.3 per cent growth posted a year ago, private final consumption expenditure rose by 7 per cent in April-June, up from 6 per cent in January-March. According to Paras Jasrai, Economist at India Ratings & Research, there are signs of consumption demand becoming “broad-based”. And while rural areas continued to outpace urban areas in volume growth for the sixth consecutive quarter with respect to Fast Moving Consumer Goods (FMCG), the “gap in volume growth is narrowing”. However, not all economists are convinced by the rise in private consumption in April-June, with HDFC Bank economists Sakshi Gupta and Deepthi Mathew saying in a note on Friday that while the 7 per cent growth signaled “some improvement in demand conditions”, urban demand is expected to have continued to witness “mixed trends”. “For instance, data shows that while growth in contact intensive services like trade, hotels, restaurants and communications rose in Q1 (signaling better demand), on the other hand, retail credit loans for housing, consumer durables etc. remained muted. Moreover, formal hiring and urban wage growth data for Q1 (measured from high frequency indicators) show muted trends,” Gupta and Mathew wrote.
