“This decade and beyond, India will be to consumption what China was in the previous two decades.”
— Sanjiv Mehta, Former Chairman and CEO, Hindustan Unilever
Few statements capture India’s economic transition as sharply as this. For decades, China represented scale — massive investment, rapid industrialisation, and an export juggernaut. India, by contrast, is beginning to represent something subtler but equally powerful: the force of domestic demand.
After nearly two years of caution, households are spending again and spending big. This festive season alone, Indians spent over ₹6 lakh crore during Diwali 2025, the highest in history. Gold and silver purchases crossed ₹75,000 crore on Dhanteras, while vehicle registrations touched 1.16 million units during Navratri, up 34% year-on-year. The revival is broad-based. Smaller cities now account for more than half of all online festive orders, and categories such as electronics, fashion, travel, and home upgrades are seeing record traction.
Unmistakably, consumption has emerged as India’s defining economic lever. It now drives nearly two-thirds of national output and is becoming the country’s most reliable growth engine.
In this edition, we examine:
- The anatomy of GDP and India’s growth equation
- Charting India’s own economic design
- What’s fuelling the consumption revival
- The virtuous loop: consumption → capacity → capex → jobs
- India’s inward turn: fractured trade and the new swadeshi wave
- The fault lines: why the momentum still needs watching
Let’s dive in.
The anatomy of GDP and India’s growth equation-
At the onset, I want to draw your attention to these two charts-
They show something quite counterintuitive. Even as India’s domestic demand has hit record highs, the Nifty Consumption Index has trailed the broader market for almost five years. Valuations, too, have settled close to their post-2019 average- neither euphoric nor distressed.
It’s a reminder that markets and the real economy often move on different clocks. Consumption cycles build slowly before they start showing up in earnings or indices. What we’re seeing now is the base of that cycle taking shape. The signals are in spending patterns. Those patterns hint at something larger — an economy that’s beginning to find new engines of momentum.
For much of the past twenty years, India’s growth story leaned on three big pillars — IT services, global outsourcing, and public spending. That mix is now changing fast.
Today, the engine looks more domestic than global. Services still matter, but the momentum is coming from urban consumption, infrastructure build-outs, and early signs of a manufacturing revival. The share of Private Final Consumption Expenditure (PFCE) in GDP has climbed to nearly 62%, the highest level in over two decades, while exports have largely plateaued as a share of output.
To reiterate this, consumption drives roughly two-thirds of India’s GDP, making it the anchor of growth and the most stable force in the economy. It reflects the collective rhythm of 1.4 billion daily choices — what families eat, how they commute, where they educate their children, and the experiences they aspire to have. The nominal value of private consumption is slated to touch ₹200 lakh crore this year, having grown at about 7% annually over the past decade. Broad-based and resilient, India’s consumption engine remains the single biggest driver of demand and confidence.
It’s visible in the numbers and in behaviour. IT hiring is slowing, but retail jobs are expanding. Construction demand has outpaced software exports. Airports, ports, and power grids are growing faster than global trade flows. The composition of growth is tilting inward, towards sectors that depend more on Indian consumers than foreign clients.
This domestic tilt also shows up in the role of the state. Government revenue spending stands at around 14% of GDP, broadly comparable with other emerging economies but far below advanced markets, where it often exceeds 30%. It reflects India’s structural choice to remain a market-driven economy — one where the state builds the foundation and private enterprise drives the momentum.
This transition is subtle but significant. A growth model built around domestic demand, investment, and productivity tends to be more resilient in a world of fractured trade and volatile geopolitics. The result is an economy that feels less vulnerable to shocks abroad and more confident in its own fundamentals.
To understand this balance better, let’s break India’s growth into its four key components — the forces that move together to create GDP.
Charting India’s own economic design
Every economy balances growth differently. In the United States, consumption makes up nearly 68% of GDP, giving it unrivalled influence over global trade. As domestic demand expanded, America offshored manufacturing and concentrated on high-value sectors like technology, finance, and healthcare. It built an economy powered by ideas where the American consumer remains the world’s ultimate buyer.
China pursued the reverse path. With consumption at just 38% of GDP, it relied on investment and exports to industrialise at record speed. That model created prosperity but also heavy debt, overcapacity, and a demographic squeeze.
India, with private consumption around ~60-62% of GDP, straddles both worlds. Its internal market offers resilience when global trade slows, while its young workforce gives it room to grow. The challenge now is to align consumption with investment, ensuring demand fuels domestic production, not imports.
What’s fuelling the consumption revival
After a muted two years, India’s consumption engine is gaining steady momentum. Multiple forces are working in tandem to sustain it:
- Policy tailwinds: Over the past few years, GST rationalisation, income-tax relief, and softer lending rates have quietly lifted household affordability. Together, they have improved purchasing power without large fiscal giveaways.
- Rising incomes: Formal employment has grown in services, logistics, and manufacturing-linked sectors. Wages are outpacing inflation, and greater participation of women in the workforce is adding another layer of income stability.
- Digital expansion: The e-commerce market grew 23% year-on-year during Diwali 2025, touching ₹1.15 lakh crore in GMV. More than half of these orders came from smaller towns, underscoring how digital infrastructure has democratised consumption.
- Wealth effect: Household wealth has surged as equities and gold together added nearly $4 trillion in the past four years. This financial comfort is translating into greater confidence to spend, upgrade, and invest in experiences.
- Credit access: Consumer credit and EMI-linked purchases have expanded across categories from housing to electronics. Importantly, delinquencies remain low, showing that India’s credit expansion is healthy.
The virtuous loop: consumption → capacity → capex → jobs
A healthy economy builds momentum through feedback loops, one force reinforcing the next. India is now approaching that point where sustained consumption can trigger a new investment and employment cycle.
- Rising demand: As consumption expands, factory utilisation has crossed 75% pushing businesses to consider new investments. Strong household spending creates the assurance that fresh capacity will not go idle.
- Capacity creation: Public capex has laid the groundwork — highways, ports, and power grids are expanding fast. The next leg depends on private players translating healthy balance sheets into new factories, supply chains, and services.
- Employment generation: Each wave of investment brings jobs, income, and skills. Those new earners become consumers themselves, feeding the next round of demand and keeping the loop alive.
After years of deleveraging, corporate balance sheets are in their best shape in over a decade. The average debt-to-equity ratio has fallen from 0.62 in FY15 to 0.27 in FY25, with companies collectively holding ₹5 trillion in cash. This signals that India’s corporate sector is sitting on gunpowder- low leverage and ample liquidity, waiting for the spark of sustained demand to ignite a capex boom.
India’s inward turn: fractured trade and the new swadeshi wave
Prime Minister Modi has repeatedly called for a renewed spirit of swadeshi, urging Indians to “support local ecosystems” and stay vocal for local. India’s next phase of growth, he believes, must come from within.
Global trade is fracturing as supply chains are redrawn, tariff barriers rise, and economies turn inward. For India, this shift is an opportunity to rebuild its industrial base and capture a greater share of domestic demand.
There is now a clear thrust on manufacturing. Commerce Minister Piyush Goyal has outlined a target to raise the sector’s share to 25% of GDP by 2047, anchored in 14 sunrise industries ranging from semiconductors and green energy to defence and medical devices. The key will be to replicate the success of schemes like PLI in electronics across other industries, while continuing to support manufacturing through tax, trade, and infrastructure incentives.
To sustain long-term competitiveness, research and development is one area where India needs to move faster. National R&D spending currently stands at only 0.6 to 0.7% of GDP, compared to over 2% in China and nearly 3% in the United States. To sustain long-term competitiveness, India must not only make more but also innovate more — funding ideas, nurturing research, and building intellectual capital that matches its industrial ambition.
Beyond manufacturing, the ambition extends to finance. GIFT City, India’s emerging international financial centre, represents a long-term bet on capital market depth and global integration. It’s a development I’ve been meaning to explore in detail. Perhaps that’s a story for some other time.
The fault lines: why the momentum still needs watching
Even as the numbers strengthen, India’s growth story is not without its weak spots. A few cracks beneath the surface need attention before this cycle becomes self-sustaining.
- Private capex lag: Corporate balance sheets are strong, yet fresh investment remains tentative. Most expansion today is public-led, and the private sector is still waiting for consistent demand visibility before committing large sums.
- Services export slowdown: The IT and outsourcing sectors, once reliable buffers, are facing global headwinds. Slower demand from the US and Europe, coupled with automation, is softening order pipelines.
- Remittance risks: With tighter migration policies across the GCC and Western economies, India’s $135 billion annual remittance inflow could moderate, affecting household consumption in several states.
- Rural demand gap: While urban spending has recovered sharply, rural India’s consumption remains uneven. Erratic monsoons, high input costs, and limited non-farm income growth have kept sentiment cautious.
- Credit moderation: After two strong years, bank credit growth has begun to cool from its mid-2023 peak. For small enterprises and consumers alike, the cost and availability of funds will determine whether momentum sustains.
In summary
India’s consumption story has set the stage, and the next chapter will be written by investment. The foundation is ready. Taxes have been simplified, credit access has improved, and public spending has rebuilt confidence. What comes next is execution.
The private sector now holds the key. With balance sheets repaired and demand improving, the opportunity is to turn stability into scale. If corporates commit to new capacity, India’s growth can shift from policy-led to productivity-led, from short cycles to sustained expansion.
At our end, we have our ears to the ground. We are paying close attention to the investment announcements being made by Indian corporates. It is often the strongest signal that underlying demand is real and durable.
For investors, here’s the takeaway: India’s economy is now powered by its own people, their consumption, enterprise, and belief in upward mobility. The decade ahead will belong to those who build for this domestic demand, not just around it.
Disclaimer – The information provided herein is intended solely for educational purposes and is as on date of the document and is subject to change without notice. In this material, Dezerv has utilized information through internal research, publicly available sources, and other data deemed to be reliable. Any statements about future developments are speculative and should not be taken as guarantees. All trademarks, logos, and brand names mentioned are used for identification purposes only and do not imply endorsement or recommendation.