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BUSINESS & TRADE OCTOBER 10, 2025 | The Indian Eye 40
GST Growth Signals Strength in Indian
Economy Despite Banking Sector Pressures
Robust GST collections, easing inflation, and rate rationalization reflect resilience, though
banks face short-term profitability challenges
OUR BUREAU lining. A report from the State Bank
of India (SBI) argues that consum-
Mumbai / New Delhi
er price inflation could undershoot
ndia’s economy is showing re- even the Reserve Bank of India’s re-
newed momentum as Septem- vised projections, thanks to favorable
Iber’s Goods and Services Tax domestic factors.
(GST) collections surged 9.1 per cent Healthy monsoon progress,
year-on-year, inflation outlook eased higher kharif sowing, adequate res-
to multi-year lows, and tax reforms ervoir levels, and strong foodgrain
began to take hold. Yet, a mixed stocks are all expected to keep prices
earnings outlook for banks points to in check.
underlying challenges, highlighting The recent GST rate cuts are
the uneven path of the country’s re- also expected to reduce retail infla-
covery. tion, particularly in rural areas.
The RBI in September cut its
According to official data, GST FY26 CPI inflation forecast by 50
basis points to 2.6 per cent—already
revenues rose to `1.89 lakh 160 bps lower than its April estimate.
crore in September 2025 from People purchase worship material as the festival season begins across the country (ANI) SBI economists suggest actual in-
flation could come in even lower,
`1.73 lakh crore a year earlier, potentially giving the central bank
marking the second straight prices by 4–6 per cent, a move like- ments. Private banks are expected room for further rate cuts.
Alongside the easing price
month of strong double-digit ly to boost rural consumption just to post a 7.3 per cent decline in net pressures, the RBI revised its GDP
profit for the quarter, while public
ahead of the festive season.
growth. In August, collections At the same time, luxury goods sector banks may see earnings slip by growth projection for FY26 upward
to 6.8 per cent, citing strong domestic
had already touched `1.86 and so-called “sin items” have been 7.1 per cent. fundamentals and resilient consump-
shifted to a 40 per cent bracket, pro-
The report attributes this to
lakh crore, underscoring resil- tecting revenues while ensuring that lagged impacts of policy rate cuts, tion. For FY27, it expects inflation to
stabilize at 4.5 per cent.
ient consumption patterns and relief is targeted at mass-market con- which have squeezed margins, along- The combination of strong tax
sumption.
side weak treasury gains due to
improved tax compliance. “The GST rationalization is a range-bound bond yields. “Unse- collections, falling inflation, and
structural shift,” said a senior tax an- cured retail stress is still evident,” the structural reforms paints a broadly
The performance marks a new alyst with a leading consultancy. “It report noted, though it added that positive picture of the Indian econ-
milestone for the indirect tax system, reduces distortions like inverted duty credit costs are expected to normal- omy. The government’s focus on ra-
tionalization and compliance-driven
which clocked a record gross collec- structures, improves affordability, ize in the second half of FY26. revenue growth is expected to pro-
tion of `22.08 lakh crore in FY25, up and enhances compliance, which to- Overall, banking sector net profit vide fiscal headroom for infrastruc-
9.4 per cent from the previous year. gether can accelerate GDP growth in is estimated to fall 7.2 per cent in Q2, ture and social sector spending.
the medium term.” but analysts project a sharp rebound
At the same time, the banking
A Reform with Teeth thereafter, forecasting a strong 17.7 sector’s earnings slump underlines
riving the revenue momen- An Uneven Ride per cent earnings CAGR for the sec- that the recovery is far from even.
tor between FY26 and FY28.
tum is the government’s GST hile GST numbers indicate Margins remain under pressure,
“Large, diversified private banks
D2.0 reform package, rolled robust consumption trends, and stronger PSUs are better placed credit growth is tepid, and stress
out late last month. By lowering tax Wthe banking sector is grap- to weather the pressure,” said a se- pockets—particularly in unsecured
slabs on essentials and rationalizing pling with short-term headwinds. A retail and microfinance segments—
the structure, the reform aims to research note from Motilal Oswal nior banking analyst. “We expect are still visible.
earnings recovery to kick in from
strengthen rural demand, ease com- Institutional Equities projects muted the second half of this year as bor- Yet analysts agree the fundamen-
pliance burdens, and support small earnings for Q2 FY26 across private rowing costs ease and credit demand tals are turning in India’s favor. “The
businesses. and public lenders, citing pressure on revives.” GST reforms and low inflation tra-
Everyday items like packaged net interest margins (NIMs), moder- jectory are game changers,” said an
foods, personal care products, and ate credit growth, and rising costs. Inflation Picture Brightens economist at a global bank. “Even
dairy-based staples have been moved Systemic credit growth stood at with global uncertainties, India’s
to lower tax brackets, with some es- 10.3 per cent year-on-year in Sep- f banks are weighed down by domestic drivers—consumption, ru-
sentials now attracting zero tax. An- tember, reflecting subdued demand near-term pressures, the infla- ral demand, and tax buoyancy—are
alysts expect companies to cut retail from both retail and corporate seg- Ition outlook offers a rare silver strong enough to support growth.”
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