India’s sweeping reduction in consumption tax has triggered a massive spending spree during the month-long festive season, offering a strong boost to Asia’s third-largest economy.
Between 22 September and 21 October, the period between Navratri and Diwali, as reported by Bloomberg, consumer spending surged 8.5% year-on-year to over ₹6 trillion ($67.6 billion, approximately).
The rise, came after the government cut the Goods and Services Tax (GST) across nearly 400 product categories to counter slower growth and offset the impact of a 50% import levy imposed by the US.
Tax reform drives festival demand surge
The Narendra Modi-led government rolled out its first major GST reduction in nearly a decade, trimming taxes from 22 September 2025 to boost household spending.
The new rates applied to a wide range of goods, including cars, jewellery, electronics, apparel, furniture, and kitchenware.
The Bloomberg data from retail intelligence firm Bizom showed sales across categories such as automobiles, gold, consumer durables, and sweets rose sharply as the lower GST filtered into prices.
Automakers including Maruti Suzuki, Tata Motors, Mahindra & Mahindra, and Hyundai Motor India benefited from the cut, with car purchases emerging as a key driver of overall sales.
Hyundai India reported a 20% jump in sales on Dhanteras — an auspicious day for big-ticket purchases — compared with last year.
Tata Motors delivered over 100,000 cars between Navratri and Dhanteras, while Mahindra saw tractor sales rise 27%, helped by a favourable monsoon and higher rural incomes.
Carmakers and banks see record activity
Maruti Suzuki’s production lines have been operating on Sundays to meet surging demand, particularly for small cars such as the Alto, WagonR, S-Presso, and Celerio.
Executives noted that many first-time buyers were upgrading from two-wheelers, citing strong bookings for entry-level models.
Financial institutions also rode the consumption wave. Kotak Mahindra Bank and SBI Cards & Payments Services reported sharp growth in credit card spending and consumer loans across categories, including vehicles, appliances, and furnishings.
In the home-goods segment, companies like Crompton Greaves Consumer Electricals recorded buoyant demand for kitchen products such as pressure cookers and mixers.
The firm said the category benefited directly from lower tax rates, as consumers made the most of festive discounts combined with the GST relief.
Temporary disruptions, pent-up demand factor
While the tax cuts lifted sales, they also temporarily disrupted supply chains as distributors rushed to clear old inventory before the new rates came into effect.
Some customers deferred big-ticket purchases from mid-August — when Modi announced the tax change — until late September, leading to a short-term dip followed by a sharp rebound once the revised rates were implemented.
Economists at Nomura, states Bloomberg, warned that part of the spike reflected “higher-than-usual pent-up demand” rather than a structural surge in consumption.
They noted that assessing trends through December and January will offer a clearer picture of sustained momentum.
Despite this, market analysts said the data indicated a broad recovery in discretionary spending, suggesting households were regaining confidence after a year of uneven growth caused by high borrowing costs and reduced external trade.
Broader consumption trends and industry optimism
According to BofA Securities, India’s consumer sentiment is improving, notes Bloomberg, though factors such as sluggish income growth and a weak labour market continue to weigh on demand.
The brokerage noted that while the festival-related jump supports short-term growth, policymakers must monitor whether spending remains strong beyond the holiday period.
Companies, however, remain upbeat. Crompton’s finance chief said real estate and cable demand trends were reinforcing optimism about household sentiment.
Traders’ associations also expect the festive momentum to extend through January 2026, driven by easier financing and higher rural spending power.
The ₹6 trillion shopping season underscores how targeted fiscal measures can boost consumer confidence, support manufacturing, and cushion the impact of global trade tensions.
For India, the move marks a significant step in reviving domestic consumption — a pillar of its economic growth story.
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