Digital payments hit fiscal's lowest levels in September as consumers likely waited for GST cuts

GST rate announcement impact?

On average, the figures for September were around 5-7 percent lower than May, when digital payment activity seemed to have peaked.

The UPI transaction value for September was around Rs 1 lakh crore, lower than August and Rs 1.3 lakh crore lower than May.

To be sure, business was slow during the first 22 days of September because of the expectation of GST rate cuts, probably pushing down the numbers for the month.

Payment Data for the period September 22-30 indicates that while Fastag has picked up marginally over the first few days of the month, it is still below the daily average of the previous months.

Indian retail auto sales grew 5.2 percent year-on-year in September, with two-wheeler sales climbing 6.5 percent from a year earlier, while passenger vehicle sales grew 5.8 percent.

Consumers’ waiting game?

However, the initial indication of a possible GST rate rationalisation announcement came in early August. The official announcement by Prime Minister Narendra Modi came in his August 15 Independence Day speech. The details of the rate cuts were announced after the GST Council meeting on September 3 and 4.

Despite several customers probably postponing their discretionary spending in August in expectation of a GST rate cut, the month’s numbers are still higher than September, possibly indicating a broader pessimism despite the rate cuts and the festive season.

Moreover, the Fastag volumes, which indicate the vehicular movement across the country, are down by 13 percent compared to May, while the value was down by 8 percent.

The only exception to this trend was the online credit card transaction value, which propelled by Flipkart Big Billion Day and Amazon Great Indian Festival, saw September processing record-high transaction value

Too early to assess October data

The lower figures can be seen in both transaction volume and value.

The trend seems to be continuing during the first seven days of October, as Fastag volumes are lower than during the first seven days of August. However, it is marginally higher than that of the first seven days of September, though it was lower than the last days of September, when the lower GST rates resulted in higher volumes, but this seems to have fizzled out in October on a sequential basis.

The ATM transactions through NFS are also lower in October compared to the first seven days of August. So are other digital payments such as UPI, IMPS and NACH Credit transactions, which include the salary payments for formal employees.

Payments trend is skewed

However, the numbers for a few days of a month may not be strictly comparable as holidays, weekends tend to skew the data downwards. The first few days of October, for instance, had Durgashtami, Mahanavami, Vijaydashmi and Gandhi Jayanti holidays apart from a weekend, which might have pulled the volumes and value down.

Most payment methods tend to hit their monthly highs during the first few days of the month because of salary, EMI payments and so on. And consumers tend to make a lot of purchases soon after their salary is credited.

For instance, UPI payments hit more than a lakh crore daily transaction value during the first few days of the month, but go down to Rs 60,000 crore in daily value by the middle of the month. NACH Credit, which includes salary payments, is several times higher on the last and first few days of the month than during the middle of the month.

Muted Festive Season?

“The festive season, historically a strong growth driver, may exert a lower-than expected boost this time. We expect a stagnant formal labour market – visible in moderation in corporate wage growth (~7% YoY) in FY25 and weak hiring – to limit discretionary spending. Recent GST cuts will trigger greater substitution (brand switching) than increase overall demand,” said an Ambit Capital report on the Economy published on October 7.

NACH debit transactions, which include EMI payments, insurance payments, SIPs and other recurring payments, have hit a record high in September. NACH credit transaction value was also the second lowest for the year after June.

Consumers may be cautious

“We are seeing households and businesses becoming more cautious in their spending, anecdotally speaking. While we don’t have publicly available category- or product-level GST data to know if this reflects a broader economic slowdown, the payment numbers do suggest softer household consumption. For a $4-trillion economy like India, greater public data transparency could help connect the dots between consumer spending behaviour and policy response and enable more cohesive, analytic-backed policymaking,” said Srinath Sridharan, policy researcher, board member and author.

Namrata Mittal, Chief Economist at SBI Mutual Fund, in a Moneycontrol column, wrote that September could see temporary softness due to weaker export orders and the impact of high tariffs.

“Nominal household consumption grew by 9.2%, the second weakest quarterly performance since the pandemic. Historically, household spending has grown at 12–13% annually over the past decade,” Mittal wrote in the column.