Year-ender 2025: Rural economy steadies as GST cuts offset weak crop prices

Lower crop prices and weak nominal farm growth weighed on rural incomes in 2025, but GST cuts, welfare support, and rising consumption helped stabilise demand and sentiment

India’s rural sector, which had been witnessing a revival in fortunes in 2025 on the back of a good monsoon, ran into rough weather following a fall in crop prices, but now appears to have found support due to Goods and Services Tax (GST) rate cuts earlier this year.

 

The GST reductions have made prices of several major agricultural equipment cheaper, pushing up sales, and are also expected to spur consumption growth in other commodities.

 

According to the eighth round of the National Bank for Agriculture and Rural Development’s (Nabard’s) Rural Economic Conditions and Sentiments Survey (RECSS) released last month, about 80 per cent of rural households, aided by GST rate rationalisation, have consistently reported higher consumption over the past year, with 67.3 per cent of monthly income now spent on consumption. This is the highest share of consumption in household budgets since the survey began in September 2024.

 

What does the latest Nabard survey reveal about rural incomes and sentiment?

 

RECSS, a high-frequency, bi-monthly assessment, also showed that in November this year, around 42.2 per cent of rural households experienced income growth, the best performance across all survey rounds. Only 15.7 per cent of households reported an income decline of any type, the lowest recorded so far.

 

Not only that, the outlook also remains exceptionally strong, with almost 76 per cent of surveyed households expecting their incomes to rise next year, the highest level of optimism since September 2024.

 

The survey also found that 10 per cent of average monthly household income is effectively supplemented through welfare transfers such as subsidised food, electricity, water, cooking gas, fertilisers, school support, pensions, transport benefits, and more. For some households, such benefit transfers exceed 20 per cent of total income, providing essential consumption support and helping stabilise rural demand.

 

How sharp is the slowdown in nominal farm sector growth?

 

Agriculture growth numbers show that in the second quarter of FY26, gross value added (GVA) in agriculture, forestry, and fishing recorded growth of 3.5 per cent in real terms, down from 4.1 per cent in the corresponding quarter of the previous financial year.

 

A bigger worry, however, was the near collapse of nominal growth in agriculture, which remains the primary occupation for vast swathes of the rural population.

 

In nominal terms, GVA for agriculture and allied activities grew by just 1.8 per cent in the July-September quarter of FY26, down from 7.6 per cent in the corresponding quarter of the previous financial year, largely due to a sharp dip in food price inflation.

 

In the first quarter of FY26 (April-June), the GVA for agriculture and allied activities in nominal terms was 3.2 per cent, lower than the 7.5 per cent in the corresponding period of FY25. The farm sector has performed well in terms of crop production, but whether this has translated into adequate earnings for farmers is questionable as food inflation has crashed.

 

What do mandi prices suggest about farm incomes?

 

As of December 12, 2025, agriculture ministry data shows that average mandi prices of major kharif crops such as maize, ragi, groundnut, and soybean were about 20–30 per cent lower than their respective minimum support prices (MSPs).

 

Prices of pulses such as arhar, gram, masur, moong, and urad were also below their respective MSPs as of December 12, 2025. Barring moong, the extent of the fall moderated somewhat between October 2025 and December 2025 after the Centre reimposed duties to check unrestricted imports of yellow peas.

 

Prices of maize, cotton, and soybean have also remained below their respective MSPs through the 2025 kharif season starting October.

 

Overall, the average wholesale prices of most kharif crops were trading below their MSPs, pulling down food inflation to multi-year lows. However, this could end up hurting farmers’ incomes and, with it, a much-needed rural recovery.

 

How have GST cuts influenced vehicle sales in rural areas?

 

Two-wheeler sales, widely considered a major barometer of rural health given the significant share of volumes from rural and semi-urban regions, recorded modest growth of 3.3 per cent between April and November FY26. Two-wheeler sales stood at 14.3 million units, marginally higher than the 13.93 million units sold in the same period last financial year.

 

Data shows that domestic two-wheeler sales growth had been modest before the big jump in November. In that month, two-wheeler sales rose nearly 21.2 per cent, largely due to the impact of GST cuts; bike sales alone showed a 17.5 per cent increase.

 

Before November, bike and moped sales were down 0.2 per cent and nearly 6 per cent, respectively, in April-November FY26 compared to the corresponding period last financial year.

 

Rating agency Icra, in a recent report, said domestic two-wheeler wholesale despatches are likely to clock 6–9 per cent year-on-year (Y-o-Y) growth in FY26 on the back of stronger replacement demand post-GST cuts, a pick-up in urban consumption, and healthy rural incomes supported by a normal monsoon.

 

Why are tractor sales emerging as a bright spot?

 

On tractor sales, another barometer of rural consumption, Icra recently revised its wholesale volume sales growth outlook upwards to 15–17 per cent for FY26, a substantial increase from its earlier estimate of 8–10 per cent.

 

The projected growth also represents a significant acceleration from the 7 per cent growth witnessed in the previous financial year, the agency said.

 

It added that the revision is based on the industry’s robust performance in recent months, including a notable 30.1 per cent Y-o-Y growth in wholesale volumes for November 2025 and cumulative growth of 19.2 per cent for the first eight months of FY26.

 

The agency attributed the improved outlook to a combination of supportive economic and regulatory factors that have strengthened demand fundamentals.

 

“A primary driver has been the reduction of the Goods and Services Tax (GST) on tractors to 5 per cent, a policy change that has directly enhanced affordability for farmers. This reduction has translated into a decrease in tractor prices, with savings ranging from approximately Rs 40,000 to Rs 100,000 across different horsepower segments, making new tractors more accessible,” Icra said in a recent report.

 

The report said agricultural conditions have further supported demand.

 

What is the trend in rural FMCG consumption?

 

When it comes to fast-moving consumer goods (FMCG) sales, which have a significant rural component, data showed that growth slowed to 7.7 per cent in the second quarter, from July to September. However, NIQ (formerly NielsenIQ), a consumer intelligence firm, pointed out that July-September marked the seventh consecutive quarter in which rural FMCG growth outpaced its urban counterpart.

 

“The Indian FMCG sector continues to demonstrate resilience, with rural markets leading the charge for the seventh consecutive quarter. While urban recovery is gaining traction, particularly in smaller towns, rural demand remains the cornerstone of volume expansion. E-commerce continues to be a key growth engine, especially in the top eight metros. With inflation easing, the outlook for consumption remains optimistic and the impact of GST changes on consumption is expected in the next two quarters,” Sharang Pant, head of customer success (FMCG), NielsenIQ India, said.

 

What does MGNREGA data indicate about rural distress?

 

Demand for work under the recently discontinued flagship jobs scheme fell for the fifth successive month in FY26 in November 2025, with around 32 per cent fewer households seeking work compared to the same month last year.

 

The average total demand per household stood at 1,935 hours on December 1, 2025 (the Mahatma Gandhi National Rural Employment Guarantee Act guarantees 100 days of employment annually). In FY26, May and June were the only two months to record a slight uptick in work demand compared to the corresponding months of FY25. Some experts said the decline mainly reflects an improvement in economic activity in rural areas.

 

However, others cautioned that the drop could also be due to a squeeze in funding, with the Centre directing states to cap MGNREGA labour budget spending at 60 per cent of the corpus in the first six months of FY26.

 

What is happening to rural wages?

 

Rural wages data continues to be a bit of a black hole.

 

Through FY24 and FY25, annual average rural wage growth for general agricultural workers (male) in nominal terms was 6.78 per cent, marginally lower than the 7.81 per cent recorded in the preceding financial year.

 

In the first eight months of FY26, the overall impression is that real rural wages may have shown good growth, given lower inflation.

 

Ambit Capital, in a note earlier this year, said real rural wage growth, which had been negative for several years, turned positive during mid-FY25 as inflation cooled and the government’s infrastructure spending gathered pace.

 

This, Ambit said, has started to rebuild household savings and lift consumption of FMCG, entry-level two-wheelers, and consumer durables.

 

However, the impact of depressed crop prices on the rural growth story in FY26 remains to be seen.

 

This is because, as per Nabard’s All India Rural Financial Inclusion Survey (NAFIS) 2021–22, the share of cultivation in the average monthly income of rural households has dropped from 35 per cent in 2016–17 to just 20 per cent in FY22, while the share of wages and salaries has risen, suggesting that while farming remains important to rural livelihoods, its role in determining overall rural economic health is gradually declining.