Domestic demand in India has grown significantly, but this trend may slow. According to the Economic Survey 2025-26, the Indian economy is currently in its most consumption-driven phase since 2012. In fiscal year (FY) 2025-26, private final consumption expenditure (PFCE) accounted for 61.5 per cent of gross domestic product (GDP), the highest level since FY 2011-12.
The Economic Survey, tabled in Parliament by Union Minister of Finance, Nirmala Sitharaman on January 29, 2026, stated that domestic demand remains a strong driver of economic growth in FY 2026. Private final consumption expenditure increased by approximately 7 per cent in FY 2026. Its share of the country’s total economy (GDP) reached 61.5 per cent, the highest level since 2012. In other words, the Indian economy’s growth is currently largely driven by private spending.
According to the Survey, low inflation, relatively stable employment conditions, and increased real incomes have helped drive this spending. Improved agricultural performance has boosted purchasing in rural areas, while tax reforms and rationalisation have also improved the spending environment in cities. Overall, market demand remains strong.
However, a close look at the half-yearly data in the Economic Survey showed that the growth rate of private final consumption expenditure was 7.3 per cent in the first half of FY 2025. This increased to 7.5 per cent in the first half of FY 2026.
At the full fiscal year level, growth is estimated at 7.2 per cent (provisional estimate) for FY2025, but 7.0 per cent (first advance estimate) for FY2026.
Signs of deficiency
“It is noteworthy that the projections for the second half of the financial year, based on the first advance estimates, indicate a slight moderation in consumption growth. However, the first advance estimates are projected to 2024-25 consumption levels based on data available up to November and are therefore subject to revision as new data becomes available,” the document read.
“Subsequent projections incorporating full-year data will provide a clearer assessment of the performance of private consumption in FY2025-26, including the impact of recent tax reforms,” it said.
The Survey clarified that for now, the strong consumption witnessed in the first half of FY2026 and supportive high-frequency indicators from the third quarter suggest that private consumption is likely to remain resilient throughout the year.
Reduction of inequality
The document cited the Household Consumption Expenditure Survey 2023-24. According to it, consumption-based inequality has declined, and the situation of the most vulnerable groups has improved.
The highest increase in average monthly per capita consumption expenditure between 2022-23 and 2023-24, according to the survey, was recorded among the bottom 5-10 per cent of the population in both rural and urban areas.
