What inflation numbers tend to reveal is equally matched, if not more, by what it conceals.

But here’s the “good” news first.

India’s retail inflation (measured by the Consumer Price Index) in July grew at the slowest pace in eight years at 1.55% but for the first time below the lower end of the RBI’s flexible inflation range of 2-6%. Not surprisingly, the year-on-year inflation rate based on the all-India Consumer Price Index (CPI) for Agricultural Labourers (AL) and Rural Labourers (RL) came in at 0.77% and 1.01%, while food inflation stood at -1.56% for AL and -1.13% for RL.

While CPI-AL represents agricultural labourer households only (farm workers), CPI-RL encompasses rural labourer households (non-farm + farm), covering a wider swather comprising agri labourers. These indices are based on data from 787 sample villages across 34 states/Union territories.

While conventional economics say low inflation means more disposable income in the hands of people, the consequences are not so straightforward. For a predominantly agrarian-dependent economy as India, low food inflation also means lower incomes. In fact, the inflation rate for agricultural and rural labourers has been steadily declining over the past nine months.

Peel away the layers and what comes through is a bit disconcerting.

An interim report submitted in November 2024 by a high-level committee constituted by the Supreme Court of India had mentioned that farmers dependent on only agriculture income earn a meagre ₹27 per day. In fact, the average monthly income per agricultural household in the rural areas of India, with reference to the agricultural year July 2018-June 2019, is estimated at ₹10,218.

In the absence of subsequent surveys, there is no sense of what the current numbers are.

Now juxtapose that against the average amount of outstanding loan of ₹74,121 per agricultural household across India, which means there is not too much of “disposable” firepower left as the average household’s indebtedness is to the extent of 60% of its annual income. So, while low food inflation hits income, the double whammy is that the cost of living is still high with core inflation, excluding food and fuel, is still high at 4.1%, which comprises staple items, housing, fuel medical, healthcare and education.

A corollary to low inflation and consequent lower income is visible in the 6.2% fall in two-wheeler sales in the first quarter of FY26 to 4.7 million units, with motorcycle volumes contracting 9.2%. Commuter bikes, the largest sub-segment, declined 10.4%, while executive motorcycles plunged 36.9%.

Why this matters is because rural India accounts for over 58% of total two-wheeler retail registrations (FY25). According to CareEdge Ratings, entry-level motorcycles account for 72% of two-wheeler volume, whereas executive and premium motorcycles make up 20% and 8%, respectively. Though two-wheeler sales have shown a steady 8%, 10%, and 11% growth in FY23, FY24, and FY25, respectively, the numbers are still below the FY19 peak.

What skews the picture further is the fragmented nature of farm holdings in India.

According to a study by Transform Rural India, a non-profit committed to transforming the most vulnerable, bottom 100,000 villages in India into self-sustaining, flourishing localities, Indian farms have fragmented further between FY11 and FY16. These 126 million farmers own 0.6 hectares on average, which cannot produce enough surplus to sustain the families financially. According to TRI, since a majority (69%) of the farmers clock average annual sales of ₹60,510, with a median of ₹40,000, nearly 68% of these farmers opt for either daily wage labour, vocational business, non-agricultural business, animal husbandry or salaried employment. That could partly explain the reason why despite lower food inflation the government’s free food grains scheme has 806.7 million beneficiaries on the rolls.

As part of its strategy to control inflation, the government has been relying on import and export restrictions of key agricultural produce. In FY25, farm produce imports surged 20% to $27 billion on the back of rising edible oil imports, primarily led by palm oil, besides pulses, cotton, fruits and vegetables. Further, duty-free imports of pigeon pea, urad, and yellow peas have been permitted up till March 2026, while lentils and gram are being imported with 10% duty.

While one school of thought argues that lower food inflation will spur rural consumption—as reflected in the “robust demand” for FMCG in Q1FY26—the reality is more nuanced. NielsenIQ data shows that while the FMCG industry grew nearly 14% year-on-year in value and 6% in volume, the underlying shifts are telling. Consumers are moving towards smaller packs, and regional manufacturers are rapidly gaining share, challenging established brands. Traditionally, high inflation led to down-trading, but in a low-inflation environment, shifting preferences signal a structural change in India’s consumption story: one that could tilt the balance in favour of homegrown brands. While that’s a story, for now, however, the spotlight shifts to festive demand.

While a concoction of full income tax rebate for individuals earning up to ₹12 lakh per annum, the cumulative 100-bps rate cut since February 2025 and the upcoming GST rationalisation can give a fillip, the jury is still out on whether the hinterlands will deliver a bumper harvest.