Rural demand surges as GST rate cuts, slowing inflation help to boost consumption

NEW DELHI: India’s rural economy expanded and recovered strongly in late 2025, with consumption, incomes and investment improving after a key tax reform and as inflation eased, a survey showed.
So far this year, 79.2% of the rural households increased consumption expenditure – the highest so far in FY26 – compared with 76.2% in the previous round, according to the November 2025 round of NABARD’s Rural Economic Conditions and Sentiments Survey (RECSS). Additionally, 67.3% of monthly income is now spent on consumption, the highest share since the survey began, aided by GST rate rationalization.
The survey was conducted after the rationalization of the goods and services tax was announced by the GST Council on 3 September during the festival season and against a backdrop of a sharp moderation in rural inflation and food deflation. The results were mixed during this period for companies benefiting from lower taxation as consumers postponed purchases in anticipation of the revised rates.
The GST rate cuts that came into effect on 22 September positively impacted categories such as television, automobiles, air-conditioners, refrigerators, soaps, and biscuits.
“The rural consumption demand buoyancy appears to have received a boost after the GST rate rationalization, with improved real purchasing power of rural non-farm income due to softer inflation also contributing to the momentum,” as per the survey findings.
Large consumer companies such as Nestlé, Parle Products and Marico reported similar trends in the September quarter. Several companies continue to double down on the rural markets.
Biscuit maker Parle Products registered faster growth in its ₹10- ₹20 price packs in the rural markets after the GST reduction. In India’s snacking category, ₹5- ₹10 packs account for the bulk of the market.
“As a result of the reduction in GST, overall consumption has gone up… some of the premium items have seen really good traction. In rural sales, we've seen good traction and good growth coming in lower-unit packs of our premium products as well,” said Mayank Shah of Parle.
This includes ₹10 and ₹20 packs of Hide & Seek, Milano and NutriChoice biscuits. Parle also sells Parle-G biscuits for as low as ₹2. GST on biscuits was reduced to 5% from 18%.
The rise in consumption coincided with perceptions of rural households of inflation easing to 3.77%, falling below 4% for the first time since the survey was initiated.
Rural growth
India’s rural markets are hugely important for large consumer goods makers. The rural markets account for 38% of sales for packaged consumer goods and two-thirds of Indians living and earning livelihood.
Nestlé India is building the right portfolio and distribution to tap more rural consumers, chairman and managing director Manish Tiwary said in a recent interview with Mint.
“We definitely now have prosperity in those markets. In the last two years, rural is clocking twice the growth of urban markets. To tap rural markets, you need the right technology to make sure you do it at the right cost,” he said.
The packaged foods maker gets 15% of its sales from the rural markets and plans to increase this share.
“It needs the right portfolio and the right reach initiatives—we are working on both. Rural is growing 1.5-1.6 times that of urban,” he added.
Demand for FMCG in the rural markets grew faster than in the urban areas in the three months ended September, according to market researcher NIQ. Volume growth in the rural areas stood at 7.7% in the quarter, compared with 3.7% in the urban markets.
“The Indian FMCG sector continues to demonstrate resilience, with rural markets leading the charge for seven consecutive quarters. While urban recovery is gaining traction, particularly in smaller towns, rural demand remains the cornerstone of volume expansion,” NIQ said.
Stronger macros
India’s economy recorded an unexpected six-quarter high growth rate of 8.2% in July-September, the government said in late November. Growth was helped by stronger expansion in manufacturing, financial services and consumption.
Private final consumption expenditure (PFCE) growth rose to 7.9% from 7.1% in the prior quarter. Retail inflation slowed to 1.7% in the September quarter from 2.7% in Q1, while wholesale inflation eased to 0.02% from 0.26%.
It helps that food inflation—accounting for nearly 40% of the CPI basket—has been in negative territory for five months, pulling down overall inflation.
“With the decline in rural food prices over four consecutive months (June-September 2025), a section of the rural households seems to have increased the share of total monthly consumption devoted to food, and as a result, the overall share of food in monthly consumption expenditure rose to 55.4%, which is the highest among all rounds of this survey,” according to the survey.
Parle’s Shah said the rural markets are currently growing 8-10% for the biscuit maker, with urban growth at 4-5%.
“If you look at the last six to seven quarters, rural growth has been outpacing urban… overall macroeconomic indicators are very positive for rural,” he said.
Manoj Verma, COO at Bikaji Foods, which draws 45% of its business from the rural markets, said, “In the last one year we have seen a lot of small, local players emerge in rural markets, and when you refer to external data, growth is driven by unit packs, which means that small packs overall, in terms of consumption, have grown faster, indicating stronger demand emerging from rural market.”
Sharper focus
Others expect greater focus on rural markets going forward.
“Over the next few years, the centre of gravity for volume growth across wider consumption categories will increasingly shift to rural markets as households move beyond subsistence into small but steady upgrades in food, personal care, mobility, and home essentials, provided monsoons remain supportive and real rural incomes start to turn decisively upward,” said Deepak H, country head and partner at Ipsos Strategy3, India, the management consulting and strategy arm of Ipsos.
During its September quarter earnings call, Hindustan Unilever CEO and managing director Priya Nair said, “There is a huge transformation taking place in rural areas in the country and we will double down behind growing across the price brand pyramid of the country.”
The recent GST rate reforms directly benefitted 40% of HUL's portfolio, which has now moved to the 5% GST slab. The company has planned “bolder marketing transformation and channel transformation” for the rural markets.
Income levels, too, improved, with 42.2% of the households reporting higher income over the past year, the strongest performance in the survey’s history. The percentage of households experiencing a decline in income during the last year fell to its lowest level, the survey showed.