India’s sluggish consumption growth may finally be turning a corner, but more support will be needed to sustain the recovery, Marcellus Investment Managers’ founder Saurabh Mukherjea has said in a note to investors.
Marcellus’ latest note appreciated government's shift in focus from public capex to consumption after almost five years, which Mukherjea said is the primary driver of India’s economic growth.
Over the past six months, a series of fiscal and regulatory steps - income tax relief in Budget, GST reforms and RBI rate cuts - have together created what Saurabh Mukherjea has called as a “five-layered consumption stimulus” worth nearly 1.8 percent of GDP.
As per Marcellus’ estimate, the government’s cumulative policy actions could inject around Rs 6.3 trillion ($76 billion) into the economy from the second half of FY26 onwards. This stimulus, Mukherjea wrote, broadly offsets the additional 1.6 percent of GDP that Indian households have been paying in taxes each year since FY19.
Saurabh Mukherjea added that between FY21 and FY24, the public capex had expanded at a 34 percent compound annual growth rate (CAGR), peaking at Rs 10 trillion. In the same period, the tax burden on individuals rose significantly, with income tax collections rising from 2.5 percent of GDP in FY19 to 3.8 percent in FY25, while GST rose from 2.5 percent to 2.8 percent. “Effectively, by FY25, Indian households were paying 1.6 percent of GDP more to the exchequer each year than they did in FY18,” Mukherjea wrote.
This higher fiscal load, coupled with weak white-collar job creation and muted wage growth in the post-pandemic period has weighed heavily on consumption. Mukherjea said from Diwali 2023 onwards, several corporate leaders have highlighted a sharp slowdown in discretionary spending, contributing to what he described as “the deepest earnings downturn in a generation”.
Marcellus’ analysis have listed out five key components of the ongoing consumption boost.
The FY26 Budget’s income tax relief for individuals earning below Rs 12 lakh a year is worth around Rs 1 trillion annually.
GST rate cuts, effective September 22, is estimated to support consumption by about Rs 2 trillion a year.
The real-money gaming ban is expected to redirect roughly Rs 70,000 crore of household spending away from gambling and toward consumption.
Regulatory efforts by Sebi to curb excessive speculation in the F&O segment could save households nearly Rs 1 trillion annually, the note added.
Four repo rate cuts so far in 2025 are estimated to reduce household interest costs by Rs 1.6 trillion, given India’s total household debt is around Rs 150 trillion.
Mukherjea said a combination of these measures could lift volume growth for autos, building materials and FMCG firms, which have been struggling at 2-3 percent per annum in recent years.
Despite these boosters, Mukherjea has cautioned that the Indian economy remains vulnerable due to high household leverage and a prolonged slowdown in white-collar employment. He also highlighted that middle-class families are increasingly struggling with debt servicing and may require further relief.
“What the Indian consumer needs now is further relief on debt burden,” Mukherjea wrote, suggesting that another 100 bps of rate cuts by RBI could provide meaningful support to household balance sheets and sustain the consumption recovery.
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