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Abstract
The study of dynamic relationship between real consumption expenditure and lending rates in a developing country like India keeps a wide relevance for the academicians, researchers, and policy makers. Economists in developing countries often consider the economic performance of their country in terms of consumption level as it constitutes the largest Gross Domestic Product (GDP) component. Lending rates has an immediate impact on consumption. An increase in lending rates causes positive private consumption to rise by the same amount, other things being unchanged. Consumption led growth is when the consumption increases, which leads to higher demand in the economy while Investment led growth is when private investment is increased, it leads to capacity expansion in the economy and hence output is increased. Inclusive Economic growth in India is based on consumption rather than investment as in countries like China.