In a challenging economic climate, India is predicted to end FY25 with a strong 6.5% GDP growth rate, a noteworthy accomplishment. However, two areas continue to show weakness: domestic consumption and private sector investment, which remains concentrated in a few sectors rather than being broad-based.

When it comes to consumption, the story is nuanced. Rural spending showed resilience, whereas urban consumption lagged, primarily due to high inflation, which eroded purchasing power. Yet, CPI inflation, which policymakers rely on, painted a more optimistic picture, with rates steadily declining to 3.3% in March 2025.
Thus, two distinct realities emerge: economists, who trust official statistics, and households, whose views are shaped by daily experiences.

A Gap Between Data and Perception

The RBI’s Consumer Confidence Survey offers insight into this gap. Conducted every two months among roughly 6,000 households, it reveals a cautious sentiment. Compared to March 2024, fewer households in March 2025 reported improvement across key economic parameters.

Although India’s GDP growth has slowed slightly compared to the previous year, people seem to evaluate the economy beyond numbers, influenced by personal factors like job security, income stability, and rising prices.

Employment and Income: A Mixed Reality

Perceptions around employment have also turned more pessimistic. Only 35.5% of respondents felt that employment opportunities improved, down from 38.1% a year earlier.
While official data, such as EPFO enrollments, suggests that job creation improved, personal experiences and news about layoffs often dominate public sentiment.

For most individuals, two issues matter most: their income and the prices they pay. Even when incomes rise slightly, if the cost of essentials soars, it diminishes real purchasing power, creating the impression that they are worse off.
Interestingly, although more people reported higher spending, this was mostly directed towards essentials rather than discretionary items, highlighting the burden of rising food and daily commodity prices.

Inflation: The Most Persistent Concern

Despite official CPI inflation dropping significantly—from 6.2% in October 2024 to 3.3% in March 2025—most households continue to feel that inflation remains stubbornly high.

This divergence is due to several factors:

Households focus mainly on daily essentials rather than the full basket of goods used for CPI calculation (like rent or clothing).
People often benchmark current prices against the lowest price they remember paying, not necessarily prices from exactly a year ago.
Psychological bias: Price increases are more noticeable and memorable than price decreases.

For instance, a Rs 2 hike in bread or milk leaves a lasting impression, while a Rs 10 drop in tomato prices is quickly forgotten.

Another RBI survey on inflation expectations found that households consistently overestimate inflation. As of March 2025, people perceived inflation to be 7.8%, while the official figure was only 3.3%. Throughout the year, perceived inflation stayed between 7.8% and 8.4%, showing how persistent this psychological gap is.

Policy Challenges Ahead

This disparity between official inflation figures and public perception raises important policy questions.
The RBI’s monetary policy targets inflation as measured by NSO (National Statistical Office) data. However, when people feel inflation is much higher than reported, they are likely to believe that real interest rates (adjusted for inflation) are negative, even when policymakers project a positive real return.

For instance, with the expected inflation at 4% and a repo rate of 5.5%, the real interest rate should be around 1.5%. Yet, households—feeling inflation closer to 8%—perceive negative returns on their savings.

Thus, while the economic outlook appears sound on paper, public sentiment remains cautious, largely driven by lived experiences rather than official statistics.