According to an ICICI Bank Global Markets research, a declining wage and employment growth cycle is harming consumer mood, and tax and rate reductions would help to speed up momentum.
According to the research, salary growth for publicly traded Indian firms virtually halved in fiscal year (FY) 2025, falling to 7. 5% from an average of 15% year-on-year (YoY) between FY22 and FY24, hurting consumption.
The slowdown in salary growth can be linked to weak demand and worldwide economic uncertainty.
The report also states that the deceleration, combined with high inflation and high interest rates, has eroded customers' disposable income, particularly in urban regions. Spending across sectors has declined.
According to the ICICI Bank Global Markets study, lower interest rates should result in greater consumer spending as repolinked loans are repriced lower, lowering consumers' interest outflow.
We believe that additional monetary help is required to stimulate expenditure as inflation declines, according to the statement.
The study reinforced its argument by noting that Fast Moving Consumer Goods (FMCG) sales in urban areas are lower than those in rural regions. In contrast, passenger car sales growth has slowed significantly, from 8. 8% in fiscal year 24 to 4. 5% in fiscal year 25.
On the employment front, the study noted that the IT industry, which was previously a robust hiring engine, continues to suffer demand issues as a result of technology disruptions, monetary tightening, and trade instability. Net hiring peaked at 293,000 in fiscal year 22 and fell to 70,000 by fiscal year 24.
According to the Ministry of Statistics and Program Implementation's official data, the Indian economy grew by 6. 5% in real terms in the most recently completed fiscal year, 202425.
The economy expanded at a rate of 7. 4% in the January-March quarter (Q4) of FY25. This was a significant increase over the 6. 2% recorded in the previous quarter.
Given the underlying fall in urban demand, the government announced a Rs 1 trillion income tax reduction in the Union Budget 202526.
The other variables that support a consumption recovery are reduced food inflation and a recent rise in GST receipts. In the previous two months, GST receipts have increased significantly, with gross GST revenue up 16. 4% year-on-year in May and 12. 6% year-on-year in April.
