New Delhi: India’s consumption rose sharply in October, boosted by the festive season and the recent rationalization of GST rates, showing economic resilience even as global growth remains uncertain, SBI Capital Markets said in its latest EcoCapsule report released on Monday. He noted that the increase reflected a decisive turnaround in demand after a stagnant monsoon quarter, with households and businesses increasing spending.
State Bank of India’s investment banking arm drew its optimism from a number of positive indicators: a 41% year-on-year jump in vehicle sales, record digital payments and the strongest festive spending in years. Unified Payments Interface (UPI) transactions hit an all-time high of 2.7 billion, while Diwali sales surged 25% to over ₹6 trillion, underscoring how domestic demand continues to drive India’s growth even as exports and global trade remain weak.
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“With PMIs (purchasing managers index) maintaining their confidence and continued spending pressure from the government in terms of capex and revex, the softness seen due to strong monsoons in Q2 seems to have given way to a sunny Q3,” the report said.
“We continue to expect nominal GDP growth of around 8.5% y/y (for July-September FY26), with real GDP supported by a low deflator and an increase in consumption,” he added.
India’s economy grew at a brisk pace in the first quarter of FY26, with real GDP growing at 7.8% and nominal GDP at nearly 8.8%, supported by resilient domestic demand and improved consumption following the cut in GST rates.
Compensating for weak exports
The increase in Indian consumer spending offset some of the impact of weak exports and global headwinds.
While tariff tensions and political uncertainty abroad continue to cloud the global outlook, India’s strong domestic demand, boosted by GST rate cuts and festive spending, is expected to sustain strong consumption in the coming quarters.
“Manufacturing PMI rose sharply to 59.2 in Oct-25, with faster growth in new orders supported by rising demand on the back of GST relief and productivity gains,” he said. “Strong demand has seen manufacturers raise output prices at a 12-year high, while slowing input price inflation means margins have expanded.”
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The report also pointed out that a new trade deal between Washington and Beijing, which cuts tariffs on Chinese goods below 50% and eases the flow of rare earths, has offered some relief to Indian businesses.
Bank credit in the country is also picking up on the back of retail lending, even as the economy awaits a broad corporate capex cycle, with the loan-to-deposit ratio once again crossing 80%, the report said. “We expect fresh term deposit rates to have bottomed in the near term, coinciding with renewed drivers of credit growth,” the report said.
A sustainable pickup is expected
“With the outlook for the rate trajectory remaining favorable and hopes for private large corporate capital spending still alive, we expect a sustained acceleration in credit growth over the medium term, with bank credit growth at 1.3-1.5 times nominal GDP growth in FY26,” he added.
On the external front, SBI Caps pointed out that the rupee’s decline against the dollar to record lows had prompted the Reserve Bank of India (RBI) to intervene aggressively in currency markets. To be safe, the central bank sold $7.7 billion in August to stabilize the exchange rate.
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Foreign portfolio inflows into India recovered in October, providing some relief, although the impact of volatile “hot money” flows will remain a key monitor, the report said.
“Furthermore, the trade deficit remains a casualty of changes in India’s crude basket and an expected surge in gold imports during the festive period. Despite these challenges, the CAD (current account deficit) of around 1% of nominal GDP in FY26 is expected to be within historical levels,” it said.
“Together with a foreign exchange reserve of $700 billion, it represents a fortress to protect against global fluctuations,” the report added.
