India's economy is growing, so why don't many households feel the recovery yet?

India's economy continues to post robust headline growth across several indicators, from vehicle sales to retail payments and industrial activity. However, a new report by DSP Mutual Fund suggests that the recovery has yet to translate into broad-based improvements in household consumption, with underlying demand still showing signs of unevenness.

The July 2026 edition of DSP Mutual Fund's Tathya report cautions that many of the impressive year-on-year growth figures are being flattered by a low base from last year. While consumption has improved on an absolute basis, the report says it remains "patchy" and cannot yet be considered a sustained trend.

Headline demand indicators remain strong

Several consumption-related indicators continue to paint an encouraging picture. Outstanding personal loans rose 15.4% year-on-year in June to ₹70.2 lakh crore, reflecting continued demand for consumer credit. Retail payments increased 12.8% to ₹92.5 lakh crore, while passenger vehicle sales, including utility vehicles, climbed 23.2% to 380,000 units. Two-wheeler sales also grew 18.6%, reaching 1.85 million units during the month.

According to DSP, these indicators suggest that economic activity remains healthy, but they do not necessarily point to a broad-based consumption boom.

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Low base masks the real picture

The report argues that double-digit growth rates should be interpreted with caution because they are largely driven by favourable base effects. Comparing current activity with last year's weak levels naturally produces strong annual growth rates.

DSP notes that while consumers are spending more than they were a year ago, the improvement is not yet widespread enough to conclude that India has entered a durable consumption cycle. Instead, demand remains uneven across sectors and categories.

Housing loans signal moderation

One indicator that stands out is housing finance. Housing loan growth moderated to 10.9% year-on-year in June, slower than the stronger growth seen earlier in the cycle.

The report highlights that housing loans had remained one of the more resilient segments of retail credit over the past year. The recent moderation, therefore, suggests that household borrowing for big-ticket purchases may be losing some momentum, even as unsecured lending and vehicle financing remain relatively healthy.

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Manufacturing and services remain bright spots

While household demand remains uneven, the broader economy continues to be supported by industrial and services activity.

Credit to industry expanded 17.5% year-on-year, Manufacturing PMI remained in expansion territory at 54.2, and capital goods output surged 30.9%, indicating continued investment activity. The services sector also remained resilient, with the Services PMI at 57.4 and credit to services growing 20.4% year-on-year.

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Inflation and government spending remain key watchpoints

Households are also contending with higher inflation. Consumer price inflation accelerated to 4.4% in June, up from 1.2% in December 2025, while wholesale inflation climbed to 8.3%, reflecting higher commodity and fuel prices. Persistently higher inflation could weigh on discretionary spending if income growth does not keep pace.

On the fiscal side, total government expenditure increased 9.1% year-on-year in June, but capital expenditure remained weak, declining 0.6%. DSP also notes that although liquidity conditions are comfortable, India still needs stronger credit growth to support a more broad-based expansion in economic activity.

Overall, the report concludes that India's economy continues to expand, supported by manufacturing, services and consumer credit. Yet the recovery is still uneven at the household level, with stronger headline numbers masking a consumption cycle that has yet to become broad-based and self-sustaining.

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