Moneycontrol Pro Panorama | Motown fills up on GST rate cuts

Domestic orders rose for the past two months, which can be attributed to lower GST rates.

Dear Reader,

It’s not the headline you want to see when all eyes are on whether consumption gets a lift from GST rate cuts.

We are not talking about the H1B visa fee hike. Of course, that has been a body blow to the Indian IT sector, effectively ending a lucrative mode of employment for Indians. My colleague Manas Chakravarty wrote that if investors, businesses and policymakers had paid closer heed to Project 25, they may not have been taken aback by this move. Many believe that this document, put together by the Heritage Foundation, is the Trump administration’s policy blueprint. But on one key area that is crucial to India, Trump has deviated from its recommendation.

The market continues to be worried by the implications of the H1B visa fee hike, as seen from the IT sector index declining for the second day. In today’s Chart of the Day, we flesh out some key numbers from reports by Jefferies and Nomura that reveal why investors are worried.

But the headline we are referring to is the title of the HSBC Flash PMI report, ‘Private sector growth cools in September’. The flash manufacturing PMI fell to 58.5 in September from the final reading of 59.3 in August. The accompanying commentary is somewhat comforting, saying new business placed with private companies showed a ‘substantial increase’, but also noting that it ‘receded’ from August.  It appears that the imposition of punitive tariffs on India has hurt new export orders. However, domestic orders rose for the past two months, which can be attributed to lower GST rates.

Given the growing external uncertainties, a lot now rests on the shoulder of GST rate cuts and the Indian consumer to deliver a consumption boost. Initial news reports point to a sizeable uptick by major automobile companies, both for deliveries and new bookings. While deliveries can be looked through, as these are past orders for which delivery is taken during Navratri, bookings are what investors should keep an eye on. Given the sharp cuts in GST for automobiles, it is reasonable to expect a decent to substantial boost to sales. Not surprisingly, the auto index is up by 0.8 percent at the time of writing.

However, the other indices of consumer stocks such as FMCG and Consumer Durables appear to have turned negative today. Retailers of these products had pointed out, according to some news reports, that footfalls and enquiries have stepped up at retail outlets, but they expect buying activity to pick up over the weekend. Consumers probably want to compare prices, try to gauge the actual benefit being passed on, and whether that’s enough to put their money down for a purchase.

But it seems a bit too early for investors to take a bearish view. It was always known that FMCG goods and consumer goods will not see an immediate rush of buying just because GST rates are lower. Buying activity will be spread out over the festival season. Promotional activity is key to get these customers into the mood to purchase. Over a longer period, the main event to watch out for is whether listed companies are enjoying higher sales growth and gaining market share.

But some scepticism on the overall impact of GST rate cuts on consumption may be warranted, writes Manas Chakravarty. He points out that private final consumption expenditure’s (PFCE) share of GDP in 2024-25 was 61.4 percent, which by historical standards is very high. He also looks at quarterly data to see what more recent trends imply. If consumption is already firing on all cylinders, can it still be boosted by rate cuts is his question. Even if it can’t be boosted substantially, GST rate cuts serve a purpose and more importantly, there are other fiscal and monetary measures that can play a role in boosting domestic businesses, he writes. Do read his interesting take in today’s edition. 

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Ravi Ananthanarayanan Moneycontrol Pro