India’s economy is showing signs of stronger-than-expected momentum in the September quarter as festive spending, GST rationalisation and industrial demand converge to push growth higher, according to new assessments from SBI Research and ratings agency Icra. While both institutions point to areas of caution, their combined analysis indicates that domestic consumption, manufacturing activity and GST inflows accelerated more firmly than in the previous quarter, setting up the possibility of an upside surprise in the official Q2 FY26 GDP data.
SBI Research said its nowcast places real GDP growth at around 7.5 per cent, with a possibility of it “ascending higher”, supported by robust leading indicators across consumption, agriculture, industry and services, 83 per cent of which showed acceleration in Q2 compared with 70 per cent in Q1 . ICRA, meanwhile, estimates GDP growth at 7.0 per cent, moderating from 7.8 per cent in Q1, as services and agriculture eased slightly, although industrial activity touched a five-quarter high of 7.8 per cent .
Despite the difference in headline estimates, both analyses identify the same drivers: a surge in pre-festive inventory stocking, a jump in card-based and UPI-based consumption, an early shopping wave triggered by GST cuts, and a broad-based improvement in manufacturing and construction.
Festive demand And GST Lifts Spending
SBI Research attributes much of the quarter’s buoyancy to the GST 2.0 rationalisation, which lowered rates across several categories and stimulated a visible behavioural shift in consumer spending. The data showed daily credit card transactions peaking at more than 1 crore transactions worth Rs 6,400 crore on 23 September, far above the average daily activity . On Diwali, credit card usage soared to 1.23 crore transactions valued at Rs 7,328 crore, showing strong discretionary spending.
The rationalisation spurred increased spending across merchant categories such as electronics, furnishing, groceries and travel, with e-commerce especially strong. Electronics and electrical goods saw 61 per cent year-on-year growth, while spending on travel agents surged 305 per cent in the same period .
Debit card trends showed the demand revival. Most major states recorded higher spending, led by Haryana (20 per cent), Telangana (19 per cent) and Andhra Pradesh (19 per cent). Metro regions posted the strongest e-commerce growth, at 8 per cent, followed by sub-urban areas at 7 per cent .
SBI Research estimates that, on average, households may save 7 per cent per month on consumption after the GST rate changes, based on effective weighted tax reductions and expenditure patterns derived from the Household Consumption Expenditure Survey 2023-24 .
GST Collections To Go Up
The spending upswing flowed into the indirect tax system. SBI Research said gross domestic GST collections for October (for September transactions) grew 2 per cent year-on-year to Rs 1.45 lakh crore, and November’s total could cross Rs 2 lakh crore once IGST and cess on imports are included .
The estimate suggests GST inflows remain structurally buoyant, aided by both compliance and consumption. Most states registered positive gains, with Maharashtra (Rs 37,248 crore), Gujarat (Rs 12,348 crore), Karnataka (Rs 13,367 crore) and Uttar Pradesh (Rs 10,412 crore) among the largest contributors.
One of the most striking indicators of demand strength came from the automotive sector. The festive period from Navratri to Diwali became the industry’s best season on record, with nearly 7.7 lakh passenger vehicles and 40.5 lakh two-wheelers sold over 42 days, according to SBI Research .
Car sales recorded double-digit growth of about 19 per cent across all regions, with rural India leading. High-value cars priced above Rs 20 lakh saw more than 40 per cent growth, suggesting a rising premiumisation trend, while small cars registered over 35 per cent growth, indicating broad-based demand across income segments .
Two-wheeler sales showed even stronger rural traction. States such as Jammu & Kashmir, Uttar Pradesh and Jharkhand posted more than 100 per cent year-on-year growth in two-wheeler volumes during the GST-rationalised festive season .
ICRA noted that such inventory stocking and festival-linked demand would likely support manufacturing GVA growth of 9.0 per cent, its highest level in six quarters, aided additionally by strong merchandise exports in electronics, petroleum, agriculture and pharmaceuticals .
Industrial Sector Outpaces Services
Icra’s assessment suggests that industry will outperform services in Q2 FY26 for the first time in a year, thanks to robust manufacturing, resilient construction and export-led industrial output. Services GVA is expected to ease to 7.4 per cent, from 9.3 per cent in Q1, as government spending slowed and services exports decelerated to 8.7 per cent growth from 10.1 per cent in Q1 .
Agriculture, impacted by flooding and unseasonal rains, is expected to grow 3.5 per cent, compared with 3.7 per cent in Q1. Despite higher acreage, crop damage and harvest delays held back performance on a year-on-year basis .
On government finances, ICRA pointed to a contraction of 11.2 per cent in the Centre’s non-interest revenue expenditure in Q2 and a 4.6 per cent decline in state capital spending among 22 states it tracked. However, central capital expenditure still grew 30.7 per cent, and the monthly average rose to Rs 1.019 trillion in Q2, suggesting that infrastructure support to growth remained steady despite monsoon disruptions .
Both reports emphasise that India’s growth remains firmly anchored in domestic consumption and investment. SBI Research notes that 83 per cent of the leading indicators it tracks across sectors have accelerated, and that the GST 2.0 reforms have strengthened the structural underpinnings of private consumption .
Premiumisation, urban demand resilience, and rural recovery are key themes. E-commerce spending patterns show consumers gravitating to higher-value electronics, appliances and travel, while PoS trends reflect stable daily-use purchases. More than 67 per cent of all debit card expenditure in September-October was concentrated in the top five categories: groceries, departmental stores, service stations, online marketplaces and family clothing shops .
Growth Risks Remain, But Outlook Stays Strong
Icra warns that GDP growth could ease to below 7.0 per cent in the second half of FY26 unless the Centre increases capital expenditure and external tariff uncertainties diminish. Rising global commodity volatility and trade-related spillovers pose risks, though both institutions note that India’s macroeconomic fundamentals remain resilient .
SBI Research maintains a more optimistic view, suggesting FY26 GDP could print in the 7.3–7.5 per cent range if current momentum persists .
As official Q2 GDP numbers approach, both datasets suggest that India’s economy has entered the festive quarter on a stronger footing than expected—driven not by one-off spending, but by broad-based reforms, improving consumer sentiment and sustained industrial expansion. |
