There is hope in the air about gathering economic momentum after a cracker of a festive season. Maruti Suzuki India Chairman RC Bhargava notes that retail sales this time around were driven by a 30% rise in dispatches of small cars, as against 4-5% growth in sales of big cars. He also foresees many car makers, including Maruti Suzuki, going back to the drawing board to revise their product mix. That signals a broad-basing of consumer demand in mass-consumption durables, which the economy has long been waiting for. While demand for high-end and premium products undoubtedly helps, an economy in a relatively early phase of a high growth cannot rely too much on it. The 4.6% gross increase in the goods and services tax (GST) mop-up in October (sales in September), despite the massive cuts in tax rates effected on September 22, is encouraging. Middle-income households, despite being constrained by low savings and high debt, have given in to their aspirations.
It is important that domestic demand picks up given the persisting global headwinds. Exporters have been remarkably resilient to the shock of the near-prohibitive tariff in a very large market like the US and smartly contained their losses by raising the share in other major markets. India’s merchandise shipments have grown by 3% in H1FY26, and services exports by 6.1%; in September, despite the 50% US tariffs, goods exports were up 6.7%. An India-US bilateral trade agreement is expected soon and should the tariffs be pared to 15-20% as is anticipated, it would be a boost for the country’s exports. The finance ministry has noted the “underlying structural weakness that was coming to the fore” in the world economy, despite the recent transitory improvement in demand conditions. As the ministry has pointed out, domestic demand has “strengthened across rural and urban India… with the implementation of the GST reforms and the festive season”. Rural real wages too have turned positive in the last many months. To be sure, growth in Q1FY26, at 7.8%, has been higher-than-anticipated with “steady upward trends visible” in Q2 FY26.
The sudden jump in the supply (output) of more price-elastic consumer items, as reflected in Index of Industrial Production data, and the optimism of industry veterans like Bhargava, prove that the policy shift to revive consumption via liberal income-tax and GST reliefs has been effective. Industry has responded with a quick effort to raise output. Neither the deep corporate tax cut nor long years of elevated public capex produced a comparable response. Rather than tax reliefs or benign interest rates, it is confidence and visibility about demand growth—hence profitability—that enthuses private investors.
Within factory output, the manufacturing sector with a weight of nearly 78% grew by 4.8% in September, higher than 4% expansion of the composite index. Production of basic metals, the largest component in manufacturing sub-index, which provides insights into what is in store in the near to medium term, expanded at a healthy 12.3%. Durables also performed exceptionally well with the outputs of computer, electronics, etc., electrical equipment, and motor vehicles posting growth rates of 10.2%, 28.7% and 14.6% respectively, all multi-month highs by wide margins. Policymakers and the private sector must now work hand in hand to sustain the tempo and raise the country’s potential growth rate so that more jobs are created.