Economy starts third quarter on a strong note

GST cuts have helped spur consumption

India’s economy began the third quarter of FY26 on a strong footing, with high-frequency indicators pointing to continued momentum in consumption and production.

Goods and Services Tax (GST) collections rose 4.6 percent year-on-year in October to a five-month high of Rs 1.96 lakh crore, hovering close to the Rs 2 lakh crore mark for the fourth time in seven months this fiscal.

“The higher gross GST collections reflect a strong festive season, higher demand, and a rate structure that has been well absorbed by businesses. It is a positive indicator of how both consumption and compliance are moving in the right direction,” said Abhishek Jain, Partner and National Head – Indirect Tax, KPMG India.

Manufacturing momentum holds

The uptrend extended to manufacturing, with the HSBC Manufacturing PMI climbing to 59.2 in October from 57.7 in the previous month, driven by strong domestic demand and the recent GST rate cuts.

“India’s manufacturing PMI accelerated to 59.2 in October, up from 57.7 during the month prior. Robust end-demand fuelled expansions in output, new orders, and job creation,” said Pranjul Bhandari, Chief India Economist, HSBC.

October marked the fifth month this year when the PMI averaged above the 59 level, underscoring sustained strength in industrial activity despite global headwinds.

“Looking ahead, future business sentiment is strong due to positive expectations around GST reform and healthy demand," Bhandari noted.

Festive demand lifts auto and digital spending

Festive demand also lifted automobile sales to record highs. Maruti Suzuki, India’s largest carmaker, reported its highest-ever wholesales in October, with domestic sales rising 9.2 percent year-on-year. Mahindra & Mahindra saw a 31 percent increase in dispatches, while Tata Motors recorded a 27 percent rise.

Two-wheeler makers also posted solid gains — TVS’s domestic sales were up 8 percent, and Bajaj Auto reported similar growth. On the commercial side, Tata Motors’ commercial vehicle business rose 7 percent, and Mahindra’s climbed 14 percent. Tractor manufacturer Escorts Kubota recorded a 3 percent uptick in sales, signalling moderate recovery in rural demand.

The GST cuts announced on September 22 appear to have provided an additional boost, particularly in price-sensitive segments.

The digital payments ecosystem mirrored the same momentum. UPI transactions rose 25 percent in October, crossing the 200-billion mark for the first time, while credit card e-commerce spends surged 58 percent compared with the previous fiscal year.

Mixed signals in core sectors

Not all sectors kept pace. Coal India, which accounts for about 80 percent of India’s coal output, reported a 9.8 percent decline in production during October, partly due to post-monsoon disruptions and base effects.

Still, the overall growth outlook remains strong. India’s GDP expanded 7.8 percent in the first quarter, its fastest pace in five quarters, and is expected to grow 7 percent in Q2, according to the Reserve Bank of India (RBI). Growth is projected to ease to 6.2 percent by the last quarter, with the central bank expecting sub-6.5 percent expansion in the second half of the fiscal.