Faster wage growth: India’s headline economic numbers remain strong. Real GDP grew 7.7% in FY26, while private final consumption expenditure rose 7.5%, according to the latest provisional government estimates. Private consumption remains the largest component of GDP. Yet one part of the growth story is less convincing: the growth of household incomes and purchasing power across the wider labour force.
The issue has acquired greater relevance after Finance Minister Nirmala Sitharaman said this week that the next phase of consumption growth will depend on wage growth and upward mobility into income brackets where discretionary spending increases. Her point goes to the central question facing India’s consumption economy. How widely is economic growth translating into higher household incomes?
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At least the near-term expectations are encouraging. The World Economic Forum’s September 2026 Chief Economists’ Outlook found that around 62% of chief economists surveyed expected inflation-adjusted household incomes in India to rise over the following year. India and Southeast Asia were the only regions where more than 60% of respondents expected real household incomes to increase. The survey was conducted between August 4 and 20, 2026.
But an expectation of higher real incomes is not evidence that households have already experienced a sustained acceleration in earnings. The latest comprehensive ILO assessment of Indian employment found that average real monthly earnings of regular salaried workers fell from ₹12,100 in 2012 to ₹11,155 in 2019 and ₹10,925 in 2022, measured at 2012 prices. Real earnings of the self-employed also declined between 2019 and 2022, while casual workers recorded only a modest increase. The ILO concluded that the pattern pointed to poor-quality employment generation over the period.
This does not mean that incomes have stagnated for every worker. Salaries in the organised corporate sector have continued to rise. Aon’s latest India salary survey projects an average salary increase of 9.1% in 2026, based on data from more than 1,400 organisations across 45 industries.
The corporate salary story, however, covers only part of the labour market. India’s consumption base extends well beyond formally employed urban professionals. Agricultural workers, construction labourers, transport workers, small traders and workers in informal enterprises are also part of the consumer economy. Household purchasing power therefore cannot be assessed from formal-sector salary increases alone.
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Are Indians earning too little?
The problem is less about whether Indians are earning less in absolute terms than about the uneven distribution and quality of income growth. A high-growth economy can generate substantial gains at the top while leaving many households with modest increases in purchasing power. For consumption, the distinction matters because a large increase in spending by affluent households does not have the same implications as millions of households moving from basic consumption towards discretionary goods and services.
This is why the debate about India’s middle class matters. Researchers associated with the World Inequality Lab and organisations such as the Pew Research Center have raised concerns about financial pressure and purchasing power among sections of the lower and middle parts of the income distribution. But weaker demand for some discretionary products should not automatically be interpreted as evidence that the middle class is shrinking.
PRICE’s ICE 360 research uses a different approach. It defines middle-class households as those with annual disposable incomes of ₹5 lakh to ₹30 lakh at 2020-21 prices. On this measure, the middle class accounted for about 40% of India’s population in 2025, up from 26% in 2016. PRICE has argued that reports of a declining middle class overstate what the available consumption evidence shows.
The two propositions can coexist. The middle class can expand in population while many households within it face pressure on their purchasing power. PRICE’s own research points to changes in consumption priorities as inflation alters household budgets. Spending that might previously have gone towards consumer durables, eating out or other discretionary purchases can be redirected towards education, healthcare, housing, insurance or savings.
That makes consumption behaviour an imperfect proxy for income growth. A household may remain within a middle-income category while reducing discretionary spending because essential costs have risen or because it has chosen to save more. The resulting slowdown in some consumer categories does not necessarily mean downward mobility.
The latest Household Consumption Expenditure Survey provides another reason to be cautious about simple claims of widening inequality. The consumption Gini fell from 0.283 in 2011-12 to 0.237 in rural India in 2023-24, while the urban Gini declined from 0.363 to 0.284. These are measures of consumption expenditure, not household income, so they cannot establish that income inequality has fallen by the same magnitude. They do, however, show that the distribution of consumption has become more equal over the period.
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The more important question, therefore, is whether the next phase of growth can generate sustained income gains for a broader share of the workforce. Tax reductions and easier credit can support consumption, but their effect is limited if households do not see a durable improvement in earnings. The latest government data show that consumption is already growing strongly. The challenge is to make that growth increasingly income-led rather than dependent on temporary boosts to disposable income.
That requires a shift in the quality of employment. Workers need opportunities to move from low-productivity and vulnerable jobs into more productive employment where wages can rise with productivity. The connection between productivity and wages is critical. If productivity gains accrue predominantly to profits, asset values or a relatively narrow segment of skilled workers, aggregate GDP can rise rapidly without generating an equally broad expansion in household purchasing power.
India therefore faces a more demanding test than sustaining a high GDP growth rate. It has to convert growth into upward mobility for a much larger share of its workforce. The latest WEF survey suggests that economists expect real household incomes to improve over the coming year. The ILO evidence shows why that expectation should be treated as a prospect rather than an established trend.
For India’s consumption story to become more durable, wage growth has to reach beyond the organised corporate sector. The strength of domestic demand over the next phase will depend increasingly on whether workers across the wider economy can earn more from more productive and secure employment.