Last Updated on November 27, 2025 4:53 pm by BIZNAMA NEWS
R. Suryamurthy
India’s economy gathered fresh momentum in October, buoyed by sweeping tax reforms, cooling prices and stronger household finances. These factors combined to lift both urban and rural consumption, according to the Finance Ministry’s latest Monthly Economic Review.
The comprehensive assessment indicates that domestic activity is strengthening even as global trade remains unsettled and commodity markets stay volatile. High-frequency indicators — from digital toll collections to air travel and tractor sales — all signal broad-based economic resilience.
GST Overhaul Drives a Consumption Revival
The government’s mid-year overhaul of GST rates is beginning to change spending behaviour in measurable ways. Businesses generated 14.4% more e-way bills in September and October compared with a year earlier, in line with stronger movement of goods.
Despite lower rates, GST collections between April and October grew 9%, signalling that tax buoyancy remains intact due to higher compliance and rising volumes.
October’s consumption figures underscore this shift. Passenger vehicles and two-wheelers logged their best-ever festive sales, while auto retail volumes for the month rose 40.5% year-on-year.
In smaller towns, fast-moving consumer goods demand picked up, supported by easing price pressures and better agricultural incomes. Digital payments surged, too — UPI transaction values climbed 16% in October, accelerating further in November.
Tractor sales, often seen as a barometer of rural confidence, reached an eleven-year high, reflecting a supportive monsoon, healthy reservoir levels and the price impact of GST rate cuts on farm equipment.
Inflation Drops to Historical Low as Food Prices Ease
One of the most dramatic developments in October was the collapse in headline inflation to 0.25%, the lowest recorded since the current CPI series began.
Food inflation fell sharply by 5%, reflecting corrections in vegetable prices and easing pressures in pulses. A favourable base effect and the full pass-through of GST reductions amplified the decline.
Core inflation remained steady at 4.3%, suggesting that underlying demand remains healthy but not overheated.
The inflation outlook received further support from the agricultural cycle. Rabi sowing progressed sharply — total acreage reached 22.97 million hectares, nearly 15% higher than a year earlier, with wheat acreage rising close to 20%. Strong water availability and early sowing have boosted hopes of better winter output.
Corporate Earnings Stay Resilient
Corporate financials for the second quarter of FY26 point to continued strength. Net sales of listed firms grew 6.1%, while net profits rose 12.3%, keeping profit margins at multi-year highs.
Importantly, the Review notes that this growth has come during a period of exceptionally low inflation, indicating that the gains reflect real volumes rather than price effects.
Global Trade Turbulence Continues, India Buffers Through Services
The external environment, however, remains fraught. The Trade Policy Uncertainty Index, while down sharply from its April peak, is still nearly triple its level from a year earlier. The IMF expects global trade growth to slow in 2026, particularly for emerging economies.
India’s trade performance mirrored this volatility. While overall exports between April and October rose 4.8%, merchandise exports in October alone fell 11.8%. At the same time, imports jumped 16.6%, driven mainly by a sudden spike in gold and silver shipments.
Gold imports surged 199% and silver imports an extraordinary 528%, influenced by international prices that rose more than 50% year-on-year. This pushed the merchandise trade deficit for October to $41.7 billion.
Yet India’s services sector offered an important cushion. Services exports hit a record $38.5 billion in October, offsetting nearly half of the merchandise deficit.
Capital Flows Steady; DIIs Deepen Their Role
Foreign direct investment remained robust. Net FDI inflows reached $24 billion in April–September, up sharply from the previous year.
Portfolio flows were more volatile. FPIs returned as buyers in October but saw net outflows in November. Despite this pattern, India’s foreign exchange reserves held firm at $687 billion, providing 11 months of import cover.
Domestic institutional investors continued to support Indian equities during global volatility. Their share in market ownership rose to an all-time high, now exceeding that of foreign investors. Mutual funds, in particular, saw consistently strong inflows from households whose financial savings have begun to recover after a dip two years ago.
Credit Growth Shows New Signs of Acceleration
After several months of easing, bank credit growth picked up again in September.
Personal loans rose 11.7%, led by a surge in loans against gold jewellery — up 114.9% year-on-year — reflecting elevated gold prices.
The MSME segment continued its strong run. Credit to micro and small enterprises increased 22%, compared with 13% in the same month last year.
Fiscal Position Stable as Government Stays Focused on Capex
The Centre’s fiscal position at mid-year remained well within the expected range. Gross tax revenue growth was muted at 2.8%, but non-tax revenue surged 30.5%, helping shore up overall receipts.
Crucially, government capital expenditure grew 40%, reflecting a sustained focus on infrastructure. Revenue expenditure growth slowed to 1.5%, helping maintain fiscal consolidation efforts.
By end-September, the fiscal deficit reached 36.5% of the annual target, broadly consistent with past years.
Labour Markets Reflect Seasonal Cooling, but Outlook Remains Firm
Labour market indicators weakened in October, largely due to seasonal shifts linked to agriculture. PLFS data showed a slight increase in labour force participation and a decline in unemployment to 5.2%, but CMIE figures captured the expected volatility as rural workers moved temporarily into farming.
White-collar hiring also moderated — Naukri’s JobSpeak index slipped 9% — reflecting the typical Diwali–Dussehra slowdown in recruitment cycles.
But forward-looking indicators are upbeat. The CII–Taggd outlook for 2026 projects higher hiring intent at 11%, while the India Skills Report shows employability rising to 56.4%, with women registering higher job readiness than men. AI and digital roles continue to expand at a rapid pace.
Economy on Stable Footing Despite External Risks
The Review concludes that India enters the second half of FY26 with strong domestic fundamentals: low inflation, improved farm prospects, steady corporate earnings and buoyant consumption.
While global trade tensions, geopolitical uncertainty and financial market volatility remain risks, analysts estimate India’s GDP growth in Q2 FY26 at 7–7.5%, keeping the country among the world’s fastest-growing major economies.