The government is shifting focus towards boosting household consumption as other growth drivers like exports and private investments remain weak.
Drivers of India’s Economic Growth
The Indian economy is powered by four key factors:
- Household consumption: everyday spending by families.
- Private investment: business and corporate investments.
- Government expenditure: public spending, especially infrastructure.
- Net exports: exports minus imports.

Current Situation
- Government expenditure has been the main driver in recent years through capital investment and interest-free loans to States.
- Private investment is growing but remains sluggish; capacity utilisation is below 80% since 2011, limiting expansion.
- Exports face global trade challenges, including high tariffs from the U.S.
- This leaves household consumption as the most reliable growth driver.
Why Household Spending Matters
- It contributes over 55% of India’s GDP, making it the single largest growth engine.
- Unlike exports, it is less affected by global shocks.
- Rising household demand can push industries to expand capacity, encouraging private investments and job creation.
Policy Measures to Boost Consumption
- GST Reforms (2025): Over 75% of rural spending and about two-thirds of urban spending now fall under the 0–5% tax bracket, lowering prices of essential goods.
- Income Tax Cuts (Budget 2025): Reduced tax rates increase disposable income, though most of it is being saved rather than spent.
- Wage Growth Challenges: Excess labour and skill gaps limit salary increases, slowing overall consumption growth.
The Conundrum
- Government spending cannot keep rising indefinitely because of competing needs like defence and welfare.
- Private sector investment depends on demand, which remains subdued.
- Thus, household consumption must be stimulated, but it requires higher income and confidence to spend.
Way Forward
- Strengthen rural demand via agriculture reforms, MSP improvements, and direct income support.
- Enhance urban consumption through better wage growth and formal job creation.
- Promote skill training to bridge the mismatch between jobs and labour.
- Balance fiscal policy continue targeted spending while nudging the private sector to invest.
Conclusion
Household consumption is India’s key growth driver, needing focused policy support. Sustaining 8%+ growth requires higher wages, more disposable income, and better skill development.