India’s income growth is lagging consumption, says CLSA; GDP seen easing to 6% in FY27

India’s household income growth is not keeping pace with consumption, a trend that could weigh on consumer spending over time, according to Nikhil Gupta, India Economist at CLSA.The brokerage expects India’s GDP growth to moderate to around 6% in the current financial year 2026-27 (FY27), with growth slowing to about 5.5% in the second half of the financial year amid base effects, weather risks, fiscal constraints and softer consumption.Gupta said CLSA’s analysis, based on proxies including agricultural and rural wages, MNREGA wages, listed company salary bills and state government employee costs, points to a slowdown in income growth in the June quarter.While the brokerage estimates gross domestic product (GDP) growth for the April-June 2026 quarter at slightly above 7%, it expects momentum to weaken later in the year.”Our analysis suggests that… we have seen a sharp deceleration in their real income growth in the first quarter,” Gupta said. He added that income growth was still lagging consumption growth in FY26 and that this trend has continued into the first quarter of FY27.According to CLSA, households have been sustaining consumption by drawing down savings and taking on more debt. Gupta said this pattern has persisted for several years and could become a concern if income growth does not improve.”It is okay if it happens for a couple of years… but this is not a sustainable model,” he said. He clarified that the trend is unlikely to cause an immediate deterioration in bank asset quality or economic growth, but could weigh on the economy if income growth fails to improve over the coming years.Gupta noted that India’s household debt-service ratio has risen, leaving less disposable income for savings and consumption. He also pointed to the Reserve Bank of India (RBI) data showing an increase in borrowers with multiple live loans, indicating that existing borrowers are taking on more debt rather than credit reaching new borrowers.Despite these concerns, Gupta said current indicators such as bank asset quality and consumer spending remain resilient. However, CLSA believes risks could emerge gradually if income growth does not recover.On the macro outlook, Gupta said CLSA has not changed its inflation forecast and continues to expect average inflation of around 5% for FY27, with inflation likely to peak at around 6% in the December quarter before easing.The brokerage expects GDP growth of slightly above 7% in the June quarter, but forecasts growth to slow to around 5.5% in the second half, citing base effects, possible El Niño-related disruptions, fiscal restraint and pressure on consumption.For the full interview, watch the accompanying videoCatch all the latest updates from the stock market here

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