Amid Trump tariff turmoil, why's the Indian consumer upbeat?

As tariffs imposed by US President Donald Trump on India double to 50%, India's economy will take a significant hit. The economic growth could dip by 30-80 basis points this fiscal year, as per economists, even as thousands of workers in sectors such as textiles and gems & jewellery are likely to be laid off. However, amid all the gloom cast by tariffs, India's consumer is expected to stay upbeat. Since consumption drives more than half of India's economy, a strong consumer sentiment will help India offset some of the tariff impact.The latest India Consumer Outlook report from BMI (a Fitch Solutions company) paints an optimistic picture of consumer sentiment and spending in India over 2025 and 2026. With inflation at its lowest point in eight years, robust income growth, and a stabilising labour market, the report forecasts that Indian households will expand spending, particularly on big-ticket items, despite global and domestic headwinds. For policymakers, businesses and consumers alike, these findings underscore a period of economic resilience and growing confidence in the world’s most populous nation.Strong growth in household spendingHousehold spending in India will post strong growth over 2025, with real household spending (measured at 2010 prices) rising 6.9% year-on-year, according to the BMI report, This pace not only surpasses the pre-pandemic growth rate of 5.4% recorded in 2019 but also highlights the strength of the consumer recovery. The figures suggest that Indian households are willing and able to spend more, a trend that will sustain the retail and services industries. While growth is expected to taper slightly in 2026, household spending is still forecast to grow by 5.5% year-on-year, reaching a real value of Rs 244 lakh crore.BMI attributes this expansion to the continued rise of India’s middle class, stable inflation levels and a notable increase in real income growth. The report states that strong gains in real income growth for Indian consumers will further promote household spending.Improving consumer confidenceConsumer confidence, which slumped dramatically during the COVID-19 pandemic, has now rebounded. The Current Situation Index (CSI) stood at 96.5 in July 2025, while the Future Expectations Index (FEI) reached 124.7. Both indicators are comfortably above pre-pandemic levels, reflecting optimism about employment, income stability and the broader economy. According to BMI, consumer confidence in all areas -- urban, semi-urban and rural -- is improving, indicating an overall positive outlook on India’s economic conditions.This upswing in confidence is particularly important for discretionary spending. Households are more willing to spend on cars, housing, travel, and other big-ticket items when they feel secure about their financial future. Rising confidence across urban and rural India also reflects broad-based growth, rather than being limited to the metropolitan elite.Low inflation to lift spendingPerhaps the most striking development is India’s inflation trajectory. In July 2025, inflation moderated to just 1.55% year-on-year, the lowest since June 2017. Food inflation dropped to 1.8%, the lowest since January 2019. This prolonged decline marks nine consecutive months of easing prices. As a result, BMI revised its inflation forecast for 2025 down from 3.0% to 2.0%. For 2026, inflation is expected to rise slightly to 3.5%, but still below the pre-pandemic average of 4.8%.The report concludes that this environment will provide Indian consumers greater spending bandwidth, particularly for big-ticket items. In simple terms, lower inflation frees up household budgets, allowing families to spend more not just on essentials but also on aspirational purchases.A resilient labour marketUnemployment in India remains manageable. BMI projects the unemployment rate at 7.0% in both 2025 and 2026, compared to 6.8% in 2023. Importantly, as of July 2025, unemployment had fallen to 5.2%, underscoring resilience in the job market. The report stresses that overall, the low unemployment rate will continue to act as a key support against any further weakness in consumer spending.Stable employment is essential for sustaining consumer confidence and spending. With millions of young Indians entering the labour market each year, the ability of the economy to provide steady employment opportunities will be critical in determining future household consumption patterns.Rising purchasing powerEasing inflation and a relatively tight labour market are boosting real wages, increasing disposable income for households. BMI estimates that by 2025, the average Indian household will enjoy purchasing power about 29% higher than in 2019. Over the medium term through 2029, disposable income per household is expected to grow by 5% annually.This growth in purchasing power will drive demand for consumer goods, services and retail expansion. The report highlights that the trajectory will provide strong tailwinds for the retail sector and overall consumer spending in the second half of 2025. In effect, this means that companies catering to India’s consumer market, from fast-moving consumer goods (FMCG) to luxury retailers, stand to benefit significantly.Household debt is manageableHousehold debt in India, while on the rise, is still manageable compared to other emerging markets. At 41.9% of nominal GDP in late 2024, it is not seen as a major risk to consumer stability. Moreover, BMI expects interest rates to gradually decline over the medium term, lowering debt servicing costs. The report explains that households will not need to allocate as much disposable income towards debt financing, which will serve as a driver for greater consumer spending going forward.This trend particularly benefits higher-income households, which typically hold more debt but also have greater capacity to spend. Lower debt burdens should, therefore, reinforce consumption growth.Risks and challenges aheadWhile the domestic outlook is positive, the report underscores that India is not immune to global risks. Persistent inflationary pressures in other markets, heightened trade tensions and supply chain disruptions pose potential challenges. BMI warns that these issues, along with fluctuating interest rates and potential labour market weaknesses abroad, could affect India’s consumer sector.Global supply chain bottlenecks, caused by geopolitical conflicts such as the Russia-Ukraine war and Red Sea crisis, could raise import costs and disrupt product availability in India. In addition, a possible recession in advanced economies like the US, Eurozone and Japan could impact global demand, indirectly affecting India’s export-driven sectors and consumer markets.Overall, the BMI report leaves little doubt that Indian consumers will remain upbeat through 2025 and 2026. Supported by historically low inflation, rising purchasing power and stable employment, household spending is expected to grow robustly. The expansion of the middle class and improving consumer confidence across urban and rural India will ensure that the recovery is broad-based and sustainable.For businesses and investors, the message is clear - India’s consumer market is poised for steady expansion, making it one of the most attractive global growth stories over the next two years.