Monsoon, incomes and incentives fuelling India's rural consumption boom

Area under kharif crops has crossed 59.78 million hectare (Mha), 6.65% more than previous year, as on July 11.

India’s rural consumption story remained muted for the first three post-pandemic years (2021-2023), but the situation swung the other way from 2024. Analysts and economists say an improvement in the rural employment scenario, higher rural income, continued favourable monsoons and fiscal incentives from the government have made for a trifecta that has turned the rural consumption story around.

They expect rural demand to continue gaining momentum and spearhead the country's overall consumption story from September onwards.

According to a July 16 report by Emkay Global, total employment in rural areas (both agricultural and non-agricultural) has consistently stood above the pre-Covid level starting December 2023. In the three years prior to Covid, employment in rural areas averaged 263 million and has, since 2024, stayed consistently above 265 million.

In April-June FY26, employment in rural areas stood around 270 million, the report said.

Also, the central government has spent nearly 1 percent of GDP in each of the past three financial years—FY23, FY24, FY25—on the rural sector, which includes money spent on rural development (capex) and on schemes directed for farmers' welfare (revenue expenditure), said Emkay.

What's fuelling rural demand?

"Improved credit availability from NBFCs (non-banking financial companies) due to easing regulations, increased government spending at both central and state levels, a supportive kharif harvest, the onset of festive season-related demand, and a backdrop of low inflation will drive rural consumption in H2FY26," said Radhika Piplani, chief economist, DAM Capital.

Earlier this week, a senior government official told Moneycontrol that above-average rainfall this season may lead to higher crop production over last year, even as he cautioned that the final output would rely in large part on spatial distribution of rains across the country.

According to the India Meteorological Department (IMD), the country is likely to witness an above-normal monsoon, 105 percent of the long-period average (LPA), in June-September. So far, northwest and central India have witnessed surplus rainfall (31 percent and 36 percent above LPA, respectively), while east and south India lag behind (24 percent and 9 percent below LPA).

Agriculture ministry data shows that area under kharif crops—rice, pulses, oilseeds, cotton and sugarcane—had crossed 59.78 million hectares (mha) as on July 11, over 6.65 percent more than the previous year.

As a result, leading FMCG players such as Dabur, Hindustan Unilever and ITC are all working on expanding their sales in rural areas, say news reports. An ITC executive told Moneycontrol that the company is offering premium cookies and snacks in Rs 10 packs to boost rural traction. The company is expanding direct distribution using a hub-and-spoke model, while scaling its e-B2B platform UNNATI, now covering nearly 800,000 outlets, to foster direct retailer engagement, largely at the rural level.

A recent report titled 'FMCG Growth Momentum Shifts: Rural India and Small Players Take Charge' (dated May 28) by NielsenIQ noted that the rural market continued to outperform its urban counterpart across most regions of India. It said that "home and personal care (HPC)" categories experienced a consumption growth of 5.7 percent in the first three months of 2025, with higher demand in rural areas.

Roosevelt Dsouza, APAC head of customer success, FMCG, NielsenIQ India, said: "With a favourable monsoon forecast and revised tax slabs, consumption is likely to pick up in the upcoming quarters."

"Interestingly, small players are gaining more ground due to a low base and changing market dynamics, though their long-term momentum remains to be seen," he added.

Other indicators, however, reflect a mixed picture of rural demand in the April-June quarter of FY26. Data from the Tractor and Mechanization Association shows sales in Q1FY26 was up 12.7 percent on year, whereas the Society of Indian Automobile Manufacturers number says two-wheeler sales were down 6.2 percent in the same period.

Rural consumption turnaround

Starting Q4FY24, FMCG volumes have seen consistent growth in rural areas compared to urban (see chart). Interestingly, in Q3 and Q4 of FY25, the gap between the growth rates of the two segments was a stark 5 and 5.8 percentage points, in the respective quarter.

This is because the income effect has finally turned the corner for rural, said Emkay Global in its report. "Real rural wage growth of both the agri and non-agri sectors—that largely remained negative, having rarely been positive even pre-Covid—has seen more than one year of a secular upturn (with a sharp improvement recently due to the fall in inflation). This points to better income opportunities from the employment shift toward more productive sectors," it said.

According to the report, real rural wage growth has remained positive since 2024, and saw a sharp rise in 2025. Emkay Global further noted that there has been consistent improvement in the rural employment composition against the first two years of Covid.

Over the last three years, the shift is normalising in favour of services. Of the 18.6 million net jobs added since March 2022, the services sector has in fact seen an increase of 23.4 million in employment, followed by manufacturing (8 million) and real estate/construction (6 million), while agriculture has witnessed net job losses of nearly 20 million, thus implying better quality of employment in the rural sector, said the report.

Others analysts say that the government's rural job security programme under the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) has been instrumental in setting a wage floor and alleviating poverty through guaranteed employment, even as its effectiveness is hampered by payment delays and fewer days of actual work. MGNREGA spending showed a deficit of approximately Rs 9,000 crore in FY25, yet the budget allocation remains unchanged at Rs 86,000 crore for FY26, noted Sankar Chakraborti, CEO, Acuite Ratings & Research.

Similarly, the Pradhan Mantri Kisan Samman Nidhi Yojana provides financial assistance to land-owning farmers, and the Pradhan Mantri Mudra Yojana supports entrepreneurship and income generation, even though its impact on wage-based employment is indirect, said Chakraborti.

"Strengthening the wage impact of these programmes will require targeted reforms such as raising wage levels, broadening beneficiary coverage, ensuring prompt disbursements, embedding skill development and aligning wage adjustments with inflation trends," he added.