Festive Cheer Meets Caution As India's Retailers Weigh Inflation Risk

By Pritha Pahari

What? 

India's retail sector is heading into the 2026 festive season on firmer footing than in months. 

The sector grew 8% year-on-year in July, compared to the same month last year according to the Retailers Association of India's (RAI) Business Survey Round 73. 

The RAI's SANKET report, prepared with payments partner Innoviti, showed genuine store-level demand recovering to 7.1% growth in July, its strongest reading since the quarter began and up from subdued single-digit growth seen earlier in the year. 

The recovery was uneven across regions. The northern and southern parts of India posted 9% growth, while the western and eastern parts showed a more moderate growth of 6% each.

Kumar Rajagopalan, executive director and CEO of RAI, told The Core that footfall at retail stores were improving but retailers remained guarded. "Festive footfall is showing signs of recovery... [but] retailers continue to remain cautious in their planning, given the uncertainty around macroeconomic conditions and the risk of overstocking," Rajagopalam said. 

He expected double-digit festive growth, but called it "measured recovery rather than complete confidence”. 

FMCG demand is projected to rise 9–11% between August and November, found Equirus Capital's July 2026 Consumer Sector Tracker, even as retail inflation ticked up to 4.45% in July and food inflation climbed to 5.52%. 

The improvement is already showing up in corporate results. 

Tata Group's Trent posted 19% standalone revenue growth in Q1 FY27 on continued Westside and Zudio expansion, while Shoppers Stop was back to profit with 10% revenue growth after a loss a year earlier. 

For apparel retailers specifically, the stakes are high. 

"The festive and wedding season typically accounts for about 35% of annual apparel retailers' sales," said Poonam Upadhyay, Director, CRISIL Ratings. "It is also the period when spending extends beyond everyday purchases, with stronger participation from mid-premium and premium categories."

Why?

The optimism rests on a few pillars. Equirus's tracker notes that a period of relatively low inflation has helped restore consumers' real purchasing power, creating a favourable backdrop for festive spending, even as companies navigate elevated input costs and intensifying quick-commerce competition.

Festive hiring is expected to climb 15–20%, according to TeamLease's Festive Season Workforce Report 2026, led by quick commerce and retail.

Channel dynamics are shifting too, but not into a simple online-versus-offline story. "Online channels continue to gain traction in apparel retail, particularly in value fashion," Upadhyay said.

According to the Clothing Manufacturers Association of India (CMAI) survey, online apparel sales are also expected to gain momentum during the festive season. 

With online currently accounting for around 12% of apparel sales, its anticipated growth challenges the traditional assumption that festive apparel shopping will remain predominantly offline.

“However, festive and wedding shopping tends to see greater participation in mid-premium and premium categories, where many consumers still prefer to see, feel and try products before making a purchase." Upadhyay called it less a battle between channels and more consumers "moving seamlessly between digital and physical channels”.

What Next?

Not everyone is convinced that the momentum will hold. 

Retail expert Rohit Bhatiani struck a cautious note, pointing to the monsoon, the West Asia conflict, and sharp inflation in onions and sugar as headwinds. 

Two kitchen staples have complicated the inflation picture this year. Onion prices have surged sharply, with the all-India average retail price up over 22% year-on-year by mid-July 2026, prompting the Centre to plan a buffer-stock release from September to ease festive supply and curb hoarding. 

Sugar prices have also climbed steeply, rising from about Rs 48 per kg in July to nearly Rs 56 per kg by August 2026, adding political heat ahead of key elections next year. 

When staples like onions and sugar get expensive, households tend to cut back on discretionary spending, leaving less in the budget for clothes, electronics and other festive purchases. 

“Rising raw-material costs remain a concern. Around 54% of respondents in CMAI’s survey are absorbing higher costs by reducing margins, while only about 35% have increased prices. This indicates that higher festive sales could come with continued pressure on profitability”, said Santosh Katariya, President, Clothing Manufacturers Association of India.

On the positive side, GST rate cuts rolled out since late 2025 on apparel, footwear and consumer durables have continued to support affordability, though mid-premium apparel priced above Rs 2,500 has seen softer demand after facing a higher GST slab.  

"The current situation is looking subdued... the essentials are continuing to rise, so discretionary would go down. It's a bit subdued,"  Rohit Bhatiani said.

While growth has been driven by value-led categories, rising inflation could mute demand in other categories. 

"A healthy festive season typically sees stronger participation across apparel segments, particularly occasion-led purchases," Upadhyay said, adding that the extent of the discretionary uptick will be key to the sector's performance.

For context, last year's festive window (Navratri to Diwali) generated a record Rs 6.05 lakh crore in trade, per CAIT, a 25% jump over 2024. 

Whether 2026 matches that pace now rests on how much essentials’ inflation eats into festive discretionary budgets.

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Rs 10,783 crore

That’s how much the Cabinet Committee on Economic Affairs (CCEA) approved for three railway multi-tracking projects across 14 districts in West Bengal, Jharkhand, Odisha, Madhya Pradesh and Chhattisgarh.

Why It Matters: The projects will add third and fourth railway lines across 656 km, increasing capacity on some of India’s busiest freight routes. The government expects the projects to handle an additional 27 million tonnes of freight annually, while improving train movement and reducing congestion.

The Shift: The move comes as India tries to shift more freight from roads to rail and lower logistics costs. Freight trains currently share tracks with passenger services, limiting both speed and capacity. The government has also expanded dedicated freight corridors to ease this bottleneck.

Previously, The Core reported that India’s logistics costs had fallen to 7.97% of GDP in FY24, but roads still carry around 60% of the country’s freight. That makes the latest railway investment part of a broader push to expand rail capacity and shift more freight away from roads, which could help bring logistics costs down further.

$100 Oil Hits India's Margins

Rising Brent crude prices past $100 a barrel are squeezing Indian fuel margins, with the domestic crude basket now trading near $109 per barrel, according to Prashant Vasisht, Senior Vice President and Co-Group Head, Corporate Ratings at ICRA. He said marketing margins on petrol have turned negative at Rs 5 per litre and on diesel at negative Rs 23 per litre for September so far.

Catch Up Quick: Vasisht warned that prices could rise further if the geopolitical situation persists, noting that countries including China had been tapping strategic reserves to meet a large share of their consumption, and their eventual return to the open market could add fresh demand pressure amid already restricted supplies.

Setting: The warning comes as benchmark Brent crude futures breached $100 a barrel on Wednesday for the first time since July 24, hitting a six-week high amid intensifying conflict in West Asia.

Attacks this week by Iran-backed Houthis on Saudi energy facilities reportedly heightened fears of a wider conflict, threatening both Red Sea shipping routes and the already constrained Strait of Hormuz.

Germany Wins Students

Germany has overtaken the US as the preferred study-abroad destination for Indian students in 2026, according to upGrad’s Transnational Education Report. Germany was the top choice for 48% of aspirants, up from 25% in 2023, while just 20% picked the US.

The Lead: Indian students are increasingly choosing overseas education for jobs, affordability and returns, rather than prestige alone. Nearly 49% said better job opportunities were their main reason for studying abroad, a shift The Signal Brief has covered previously.

The Turning Point: Germany is benefiting from its lower education costs, strong technical programmes and clearer post-study work pathways. Meanwhile, rising costs and tighter immigration policies in traditional destinations such as the US, UK, Canada and Australia are making alternatives more attractive. Seven in 10 aspirants plan to spend less than ₹30 lakh on overseas education.

Xiaomi Faces Fresh Probe

India's Serious Fraud Investigation Office (SFIO) has recommended a detailed probe into Xiaomi over alleged irregularities in its business model and compliance with foreign investment law, Reuters reported.

The proposed investigation would examine fund movements, beneficial ownership of foreign investors, and whether Xiaomi sought mandatory approvals required since India tightened scrutiny of Chinese investments after 2020 border clashes.

The Lead: The recommendation, pending ministry approval, comes ahead of Chinese President Xi Jinping's expected visit for the BRICS summit in India at the weekend.

Critical Moment: Once India's top smartphone brand, Xiaomi has slid to fourth place with 13% market share, down from 19%. It is already fighting a $584 million asset freeze over alleged illegal remittances. SFIO also flagged concerns over exclusive e-commerce tie-ups with Amazon and Flipkart, questioning whether Xiaomi held "de facto control" over online sellers.

MSME Credit Key To Export Growth

MSME export growth needs better trade finance, said Rajesh Agrawal, Secretary, Department of Commerce at Global Fintech Fest (GFF) Mumbai.

Context: Banks seek credit history and trust, but many SMEs selling via e-commerce have sales but no formal export credit history.

That gap blocks access to traditional trade finance, which is assessed on buyer creditworthiness and documentation. “A Niryat credit card is being tested for short-term fulfilment credit,” said Rajesh Agrawal.

The Niryat Credit Card is a government card to give small online sellers quick money to complete export orders.

Focus: He added that trust, data privacy and AI for fraud detection and risk mitigation will be key for cross-border, and that GIFT City is being built as a gateway for onshoring and exporting financial services.

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The Big Liquidity Drain In Indian Markets

On Episode 974 of The Core Report, financial journalist Govindraj Ethiraj talks to Anindya Banerjee, Head of Currency & Commodity Research at Kotak Securities as well as Sachin Seth, Regional Managing Director at CRIF, India & South Asia on the sidelines of the Global Fintech Fest 2026.

• The Big Liquidity Drain In Indian Markets

• Inflation May Have Hit A 20-Month High

• What To Make Of A Falling Dollar And Rising Yen?

• The Big Opportunity In India’s Near To Credit Populace