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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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