India’s Consumption Story: Domestic Demand Remains Strong Post-Festive Season
Recent data suggests a robust and encouraging trend in the Indian economy: domestic demand is holding steady even after the conclusion of the festive season. This sustained consumption, analyzed in a new report by financial services firm Prabhudas Lilladher, indicates a positive trajectory for economic growth in the coming fiscal years. The report delves into spending patterns from FY2024 through FY2026, seeking to determine if the surge in spending during festivals was a temporary blip or a sign of broader, underlying economic momentum. The findings are overwhelmingly optimistic, pointing towards a resilient consumer base and a strengthening economy.
Analyzing the Post-Festive Consumption Trend
The core question the Prabhudas Lilladher report addresses is whether the increased spending witnessed during Diwali and other festivals was simply a delayed release of pent-up demand, or if it signaled a genuine shift in consumer behavior. Their analysis reveals the latter appears to be true. The report explicitly states that “post-festival demand remains on track,” a significant indicator of confidence in India’s economic future. This has important implications for investors and policymakers alike.
Digital Payments as a Key Indicator
A crucial element supporting this positive outlook is the continued strength in digital payment trends. The report highlights substantial growth in Unified Payments Interface (UPI) transactions. UPI transactions have risen impressively from ₹8,400 billion in FY2025 to ₹11,500 billion so far in FY2026. This sustained increase, beyond the typical festive bump, demonstrates a growing preference for digital modes of payment and increased consumer activity.
Additionally, credit card spending has also experienced notable growth, climbing from ₹527 billion in FY2025 to ₹579 billion in FY2026. This further reinforces the idea that consumers aren’t scaling back on spending after the initial festive period. These metrics illustrate a healthy level of consumer spending and financial activity.
Broader Economic Indicators Fueling Demand
Beyond digital payments, several key macroeconomic indicators corroborate the narrative of strong domestic demand. October 2025 witnessed India’s Manufacturing Purchasing Managers’ Index (PMI) increase to 59.2, a substantial figure indicating expansion in the manufacturing sector. Simultaneously, the Index of Industrial Production (IIP) for September demonstrated a year-on-year growth of 4.0 percent.
Manufacturing output itself experienced a robust increase of 4.8 percent. This surge suggests manufacturers have confidence in future demand and are actively scaling up production to meet anticipated needs. This is a positive feedback loop – increased production creates jobs and income, further fueling consumption.
Factors Supporting India’s Consumption Outlook
The report pinpoints a combination of domestic policy measures and broader macroeconomic factors driving the optimistic economic outlook for India. Several key elements are expected to bolster household spending in the near and medium term.
- Tax Relief & GST Rationalization: Government policies focused on providing tax relief and streamlining the Goods and Services Tax (GST) system are increasing disposable income for households.
- 8th Pay Commission: The anticipation of the implementation of the 8th Pay Commission for central government employees is expected to inject further purchasing power into the economy.
- Healthy Rural Incomes: A strong monsoon season and robust harvests of both kharif and rabi crops are contributing to increased incomes in rural areas, a significant driver of overall consumption.
Looking ahead to FY26 and FY27, the report anticipates continued support for consumption through policy interventions. Specifically, potential rate cuts of 100 basis points, further income-tax reductions, and adjustments to GST rates are projected to raise household disposable income and lower retail prices, creating a more favorable environment for spending.
Potential Headwinds and Cautions
While the overall picture is positive, the report doesn’t shy away from acknowledging potential risks. It cautions that external factors, such as the imposition of US trade tariffs and broader global economic uncertainty, could potentially dampen the momentum of domestic demand. These global headwinds could impact export-oriented industries and overall investor sentiment.
However, the report emphasizes that the combination of supportive domestic policies and a resilient consumer base should provide a buffer against these external pressures. Maintaining a focus on strengthening the internal economy will be crucial to navigating these challenges.
Conclusion: A Resilient Consumption Story
The Prabhudas Lilladher report paints a compelling picture of a resilient Indian economy, driven by sustained domestic demand. The strong post-festive payment trends, coupled with improving industrial activity and supportive government policies, suggest a positive consumption outlook in the near to medium term. While acknowledging potential global risks, the report remains optimistic about India’s economic trajectory.
This positive trend offers opportunities for businesses to expand and invest, and for policymakers to continue implementing reforms that foster sustainable growth. For investors, it signals a potentially attractive market with strong underlying fundamentals. Staying informed about these evolving economic indicators will be key to capitalizing on the opportunities presented by India’s growing consumption story.
