GST cuts spark broad economic momentum, October review shows - SME Futures

In September, the Finance Ministry slashed the GST rates on some products and brought many products and commodities under just two slabs – 5% and 18%.  After these cuts, the Indian economy gained a good traction in October boost consumption across both urban and rural markets, reveals the Monthly Economic Review released by the Department of Economic Affairs. High-frequency indicators, from e-way bills generation to festive season vehicle sales, showed clear improvement in generating increased demands, signalling a broad uplift in economic activity.

Consumption witnesses a jump

The review reported a rise in automobile sales, record UPI transaction values, and an 11-year high in tractor sales underscored the impact of lower indirect taxes on households’ disposable income. E-way bills grew 14.4% year-on-year in September and October from last year, while passenger vehicles and two-wheelers recorded lifetime-high sales during the festive period.

The review emphasises that new GST slabs and cuts have catalysed both consumption and compliance, even as revenue collection remains firm.

Inflation drops to a record low

The Review reports that headline inflation fell to an unprecedented 0.25% in October 2025, aided significantly by GST cuts, favourable food prices, and a strong base effect. Food inflation declined 5%, the steepest fall in over a decade, driven by sharp corrections in vegetable and pulses prices.

Core inflation remained steady at 4.3%, indicating that demand revival is not causing broad-based price pressures.

At the same time, rural income prospects strengthened. Rabi sowing surged 14.8% year-on-year, supported by healthy soil moisture and reservoir levels, further improving the outlook for food supply and rural consumption.

Corporate performance holds steady

Listed companies representing two-thirds of corporate sales posted stable results in Q2 FY26. Net profits grew 12.3% year-on-year, while profit margins remained among the highest in recent years. Manufacturing PMI rose to 59.2, and services PMI stayed robust at 58.9, both well above expansion thresholds.

Economy stepping forward with firm footing

With easing inflation, buoyant consumption, strong corporate earnings, and resilient financial markets, the Review concluded that India is positioned to maintain growth momentum through the second half of FY26. Stable GST collections and rising rural demand add further strength to the economic outlook, even as global trade uncertainty remains a watch point.

Industry opinion

Ranjeet Mahtani, Partner at Dhruva Advisors, said, “The data clearly shows that recent GST rate cuts are translating into stronger consumption. Indicators such as e-way bills numbers, auto and two-wheeler sales, tractor demand, and UPI transaction values all point to a measurable and broad-based lift in consumer activity following the rationalisation.

Rural markets, smaller urban centres, and discretionary segments are responding most visibly, indicating that households are experiencing the benefit of a lower indirect tax burden in everyday purchases. Equally important, GST revenues have grown by 9% this year, confirming that rate rationalisation has not weakened collections. If anything, a simpler and more coherent rate structure appears to be strengthening compliance and reducing classification-related frictions.”