2025: When rural optimism rose but farm returns stayed under pressure

GST rate cuts and welfare transfers lifted consumption, but falling crop prices clouded farm incomes

India’s rural economy, which showed signs of revival in 2025 owing to a good monsoon before being hit by a sharp dip in crop prices, appears to have found support from the reduction in goods and services tax (GST).

 

The tax cuts have lowered prices of several categories of major agricultural equipment, boosting sales. They are also expected to spur broader consumption growth across 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 in November, nearly 80 per cent of rural households reported higher consumption over the past year. Consumption now accounts for 67.3 per cent of monthly household income — the highest share since the survey began in September 2024 — aided by GST rate rationalisation.

 

RECSS, a high-frequency, bi-monthly assessment conducted since September 2024, showed that in November 2025, about 42.2 per cent of rural households experienced income growth, the best performance across all survey rounds. Only 15.7 per cent reported an income decline of any kind, the lowest so far.

 

The outlook remains strong, with nearly 76 per cent of surveyed households expecting their incomes to rise next year — the highest level of optimism since September 2024.

 

The survey also highlighted the role of welfare transfers, which effectively supplement about 10 per cent of the average monthly income of rural households through subsidised food, electricity, water, cooking gas, fertilisers, school support, pensions, and transport benefits. For some households, transfers exceed 20 per cent of total income, helping stabilise consumption and rural demand.

 

Nominal farm growth slumps

 

Agriculture growth data, however, presents a mixed picture. In the second quarter of FY26, gross value added (GVA) in agriculture, forestry, and fishing grew 3.5 per cent in real terms, down from 4.1 per cent in the corresponding quarter of the previous fiscal. More worrying was the near-collapse in nominal growth.

 

In nominal terms, agricultural GVA grew just 1.8 per cent in the July–September quarter of FY26, sharply lower than the 7.6 per cent growth recorded a year earlier, largely due to a steep fall in inflation. In the first quarter of FY26, nominal GVA growth for agriculture and allied activities stood at 3.2 per cent, down from 7.5 per cent in the corresponding period of FY25.

 

While crop production has been strong, whether this has translated into adequate farm earnings remains open to interpretation as food inflation has crashed.

 

As of December 12, 2025, agriculture ministry data showed average mandi prices of key kharif crops such as maize, ragi, groundnut, and soybean trading around 20–30 per cent below their respective minimum support prices (MSPs).

 

Maize, cotton, and soybean prices have remained below MSP throughout the 2025 kharif season, from October through December. In the pulses segment, prices of arhar, gram, masur, moong and urad were also below MSP levels as of December 12.

 

Barring moong, the extent of price decline moderated between October and December after the Centre re-imposed duties to curb unrestricted imports of yellow peas. Overall, wholesale prices of most kharif crops remained below MSPs, pulling food inflation to multi-year lows but potentially hurting farm incomes and the rural recovery.

 

GST-driven boost for two-wheelers  

Two-wheeler sales, often seen as a barometer of rural health, grew a modest 3.3 per cent year-on-year in April–November FY26 to 14.3 million units, compared with 13.93 million units a year earlier.

 

Data shows that sales growth was subdued before November, when volumes jumped sharply following the GST cut. In November alone, two-wheeler sales surged nearly 21.2 per cent, driven largely by a 17.5 per cent rise in motorcycle sales.

 

Before November, bike and moped sales were down 0.2 per cent and nearly 6 per cent, respectively, during April–November FY26 compared with the same period last year.

 

Rating agency Icra expects domestic two-wheeler wholesale dispatches to grow 6–9 per cent year-on-year in FY26, supported by stronger replacement demand, GST cuts, improving urban consumption, and healthy rural incomes backed by a normal monsoon.

 

Tractor sales remain strong 

Tractor sales, another key rural consumption indicator, have remained strong. Icra recently revised its FY26 wholesale volume growth outlook upward to 15–17 per cent, from an earlier estimate of 8–10 per cent.

 

The projected growth also marks a sharp acceleration from the 7 per cent expansion seen in FY25. The agency cited robust recent performance, including a 30.1 per cent year-on-year jump in wholesale volumes in November 2025 and cumulative growth of 19.2 per cent in the first eight months of FY26.

 

Icra attributed the improved outlook to supportive economic and regulatory factors, particularly the reduction of GST on tractors to 5 per cent. The tax cut has lowered tractor prices by roughly Rs 40,000 to Rs 1 lakh across horsepower segments, significantly improving affordability.

 

Favourable agricultural conditions have further supported demand, the agency said.

 

Rural FMCG demand beats urban 

In the fast-moving consumer goods (FMCG) sector, where rural markets form a significant base, growth slowed to 7.7 per cent in the July–September quarter. However, according to NIQ (formerly NielsenIQ), rural FMCG growth outpaced urban markets for the seventh consecutive quarter.

 

“The Indian FMCG sector continues to demonstrate resilience. While urban recovery is gaining traction, particularly in smaller towns, rural demand remains the cornerstone of volume expansion,” says Sharangpani Pant, head of customer success-FMCG, NIQ India. “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,” he adds. 

 

MGNREGA work demand

 

Demand for work under the Mahatma Gandhi National Rural Employment Guarantee Scheme, which has since been discontinued, fell for the fifth consecutive month in November 2025. Around 32 per cent fewer households sought work compared with November last year, according to data recorded at 7.35 pm on December 1.

 

In FY26, only May and June recorded a marginal uptick in work demand compared with the corresponding months of FY25. Some experts attribute the decline to improved rural economic activity, while civil society groups point to funding constraints, with the Centre asking states to cap labour spending at 60 per cent in the first half of the fiscal.

 

Wages and incomes: mixed signals 

Rural wage trends remain difficult to assess due to limited data. In FY25, annual average rural wage growth of general agricultural workers (male) in nominal terms was 6.78 per cent, which was a tad lower than the 7.81 per cent recorded in the preceding financial year. 

 

In the first eight months of FY26, real rural wages are widely believed to have improved as inflation moderated. In a note circulated a few months ago, Ambit Capital said that real rural wage growth, which had been negative for several years, turned positive in mid-FY25 as inflation cooled and government infrastructure spending gathered pace, helping rebuild household savings and lift consumption of FMCG products, entry-level two-wheelers, and consumer durables.

 

However, the extent to which depressed crop prices will affect the rural growth narrative in FY26 remains uncertain. Nabard’s All India Rural Financial Inclusion Survey 2021–22 shows that cultivation’s share in average monthly income of agricultural households fell from 35 per cent in 2015–16 to 33 per cent in 2021–22, while wages and salaries rose. For all households, it was just 20 per cent.

 

Farming, while still central to rural livelihoods, now accounts for a declining share of household income; it’s a structural shift that continues to shape the broader health of the rural economy. 

 

(Sharleen D’Souza contributed to this report)