1 month of GST 2.0: Consumption zooms; will economy grow?
Upward spike during September 22-October 18 is partly because consumers deferred purchases between August 15, when the rate was first announced, and September 22, when it came into effect
As the GST rate cuts complete a month, has it led to a significant boost in consumption, and will it give a fresh impetus to growth?
The first part of the question is easy to answer because relevant data suggest a boost in sales across the board, but not the second part, given that the US tariffs cut down Indian exports to the US by 12 per cent in September. With a rapid depreciation in the rupee and continued uncertainty over the US tariffs, the growth outlook remains uncertain.
Govt’s forecast
On October 18, three central ministers, Nirmala Sitharaman, Piyush Goyal and Ashwini Vaishnaw addressed the media to claim that the GST cuts would lead to “additional” consumer spending of Rs 20 lakh crore in this fiscal – significantly boosting growth.
In the absence of comprehensive data, some of which would be available weeks and months later, the claim of additional consumer spending of Rs 20 lakh crore is premature. But the early signs are very positive.
Some of the data also suggest that a part of the reason for an unusual upward spike could be because of deferred spending between August 15, the day Prime Minister Modi announced his “Diwali gift” by way of the GST rate cuts, and September 22, the day the rate cuts came into force.
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The Prime Minister had said, “The government will bring Next Generation GST reforms, which will bring down tax burden on the common man. It will be a Diwali gift for you.”
Finance Minister Nirmala Sitharama had, however, dismissed the role of deferred spending when asked, on October 18, whether the rise in consumer spending being witnessed was seasonal and a result of pent-up demand or revenge purchases. She asserted then that the consumption spending would continue and that the GST tax reductions were required to make the system “a lot more nimble”. She also said that with the GST collections touching Rs 2 lakh crore a month, the Centre had “greater fiscal room to give back (to the taxpayers) something”.
Deferred purchases in FMCG and automobiles
The market research firm NielsenIQ’s data was the first to give the alert that India was indeed witnessing deferred purchases. Sales of the FMCG items like large grocery packs, soft drinks, refrigerators, air conditioners, smartphones, etc. had fallen by 5-25 per cent in the September quarter because consumers were waiting for the actual GST rate cuts to come into effect from September 22.
Harshit Bora, head of analytics at Bizom, another firm that tracks the FMCG sector, confirmed to The Federal that the sales dipped by 18-20 per cent during the first 10 days after September 3 (when the GST cut was approved by the GST Council) and credited the subsequent jump in sales after September 22 to the “pent-up buying”.
Bizom tracks FMCG items like beverages, chocolates and confectionery, commodities, dairy products, home and personal care, and packaged food.
During the Navratri period from September 22 to October 2, Bora said FMCG sales jumped nearly 30 per cent. But this was from a very low base because last year’s Navratri sales was (-)2 per cent. It must also be noted that Navratri is considered auspicious for buying – coming as it does after a fortnight of “shradh” or “pitru paksh” – a period when Hindus pay homage to their ancestors – when buying is considered inauspicious.
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Similar was the case with automobile sales.
A statement issued by the Federation of Automobile Dealers Association (FADA) on the August sales was titled “GST 2.0 defers purchases to September”, even though its numbers showed the overall retail sales of automobiles had gone up by 2.8 per cent year-on-year and 0.02 per cent month-on-month.
The year-on-year automobile sales saw a 30 per cent rise in tractors, 8.6 per cent in commercial vehicles, 2 per cent in two-wheelers, 0.9 per cent in passenger vehicles, but 26.5 per cent fall in construction equipment (bulldozers, cranes, etc.) and 2.3 per cent fall in three-wheelers. Month-on-month sales dipped in all the categories by 1 to 7.4 per cent, except 1.3 per cent rise in two-wheelers.
It went on to describe its near-term outlook as “muted” for early September because of the “shradh” and “GST deferments”, and “strong rebound” for late September. This was later confirmed in its September sales report – showing “muted” sales in the first 22 days of September and “revived demand” in the post-September 22 sales.
Gold and silver sales saw unusual boom
According to Praveen Khandelwal, secretary general of the Confederation of All India Traders (CAIT) and BJP Member of Parliament from Chandni Chowk, the overall Diwali season sales (September 22 to October 18) went up to Rs 5.4 lakh crore – against Rs 4.25 lakh crore in the 2024 season.
These included gold and silver (up 10 per cent), grocery and FMCG (12 per cent), consumer durables, electronics and electricals, gift items, sweets and namkeen, bakery and confectionery, fruits and dry fruits, home décor, furniture, garments, footwear, etc.
The CAIT data don’t include the sales numbers between August 15 and September 22.
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Pankaj Arora, president of the All India Jewellers and Goldsmith Federation, told The Federal that the sales of gold and silver during the Diwali season extending to (September 22-October 18) jumped to Rs 60,000 crore – up from Rs 22,000 crore in the 2024 Diwali season.
In volume terms, gold sales went up from 25 tonnes in the 2024 season to 30 tonnes this season and silver from 300 tonnes to 1,200 tonnes. He attributed the surge, despite a sharp rise in the prices of gold and silver in recent months, to a shift in investors' behaviour being witnessed since the pandemic year of 2020. Gold and silver are viewed as the safest investments amidst the capital market and global economic uncertainties.
Insurance sales, stock markets up
The insurance sector has also seen an upward spike, particularly in term and health covers, post the GST cuts. Industry sources have been quoted as saying that a spike was seen after the GST rate cuts came into effect.
While the actual data is not yet available, the Insurance Regulatory and Development Authority of India (IRDAI) data for FY25 had shown a significant fall of (-)18.9 per cent in first-year premium on policies/schemes – in both individual and group insurances.
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Meanwhile, the festive spirit boosted capital markets too, though belatedly. Both the Nifty50 and BSE Sensex reversed their trends to steadily climb up from September 30. The ‘muhurat’ trading on October 21 saw a moderate upswing (0.3 per cent) in both the indices. But the net gains between September 30 and October 21 is a 5.1 per cent jump in the Nifty50 and 5.2 per cent in the BSE Sensex.
For now, the setback to Indian exporters to the US, its most lucrative market, has been set aside.
