GST Cuts Delivered A Festive Pop That Won’t Sustain In 2026

The GST Bachat Utsav, as it was termed by the government, prompted a burst of spending across categories from September and October 2025. Rate cuts across automobiles, appliances, fashion, insurance and budget hotels made goods more affordable at a time when consumers were already preparing for festive buying.

On the day after the GST rates became effective on September 22, 2025, Indians swiped their credit cards over 10 million times, generating Rs 6,400 crore in one day of spending. By Diwali, considered auspicious for new buys, the momentum picked up further with 12.3 million credit card swipes worth Rs 7,328 crore, according to SBI Ecowrap.

Between the festival months of September and October, credit card spending rose 5%, amplified by the GST rate cuts.

“This festive season, our total spends in Q2 FY26 touched an all-time peak of Rs 107,063 crore, a strong 31% YoY growth,” said Salila Pande, MD & CEO, SBI Card adding that online spends accounted for 62.5% of the total retail spends.

Consumer durables, restaurants, and department stores were among the strong contributors.

The auto sector recorded its best-ever October, with cars and two-wheelers selling 22% and 21% respectively. E-commerce sales, too, saw their best festive season in five years, according to Redseer.

But the surge already appears to be fading. Early data, sector-level trends, macro indicators and price behaviour all indicate that the GST-led consumption bump was sharp, but it’s going to be short-lived, unlikely to meaningfully spill over into 2026.

Weak November numbers, muted price transmission, uneven spending patterns, fragile macroeconomic conditions, and the historical fact that tax-driven consumption spurts normalise quickly all point to the same conclusion that the GST cuts provided a temporary stimulus, not a sustained consumption revival.

Fade Out Already Visible

Even after a spectacular September–October, auto companies saw a month-on-month drop of 3–32% in November, as per Invest Value, despite still being in the green on a YoY basis.

The cooling aligns with patterns seen historically. “Tax-driven consumption spurts tend to normalise within two to three quarters as the initial stimulus fades out and demand aligns with underlying income and credit conditions,” said Sankar Chakraborti, MD & CEO, Acuité Ratings and Research.

“The impact of GST rate reductions amplified by deferred purchases during periods of high inflation is expected to extend into Q4FY25 or early FY26,” Chakraborti said.

Not just experts, rating agencies too have said that this momentum will slow.

India Ratings has revised its private final consumption expenditure (PFCE) projections to 7.4% for FY26 compared to 7.2% in FY25, on account of GST cuts and lower inflation. It added that the pick in sales for consumer durables and auto were “unlikely to continue in the rest of the fiscal year”.

ICRA noted that even if the consumer zeal holds on, there could be a variance between items. “While the GST rationalisation may support demand for regular use/small-ticket items after the festive season, the sustenance of the buoyancy in demand for big-ticket items remains to be seen.”

Have Price Cuts Reached Consumers?

One of the earliest signs that the consumption surge may not hold is the muted and uneven transmission of GST cuts into retail prices.

Rating agency ICRA described the price reduction stemming from the GST rate cut as a ‘mixed bag’.

ICRA's analysis of price reduction post GST cut — using e-commerce platform data between September 20, 2025 and October 31, 2025 (rate cuts came into effect on September 22) — showed that the price reduction wasn't broad-based.

“For 38%of the products across categories, the price remained unchanged between the above two dates. While prices had come down during the festive discount period, they have now sprung back to where they were prior to the GST rate cut,” ICRA said.

For 34% of the products, the price increased; while for only for 15% of the products across categories, the price decline has been more than 5%.

For appliances, the situation was even more complicated. Stricter norms by the Bureau of Energy Efficiency (BEE) for consumer durables like refrigerators, ceiling fans, air conditioners, deep freezers, and domestic LPG stoves will push manufacturing costs up.

This could neutralise a large share of the GST benefit.

In categories where price revisions did happen, competitive pricing during the festive period, combined with online discounting, distorted the extent to which GST cuts brought prices down.

Even with the price algorithms of the website taken for margin of error, the price reductions do not seem to be broad-based.

Spending Surge Was Narrow

Credit card swipes showed high spending, but they have been restricted to a few segments.

Most sales during the e-commerce festive season veered towards electronics, with smartphones and TVs showing the sharpest growth, according to Redseer.

While the headline sales numbers, judged by card swipes and e-commerce transactions, paint a sparkly picture, the extent of sales fell short of expectations. The gross domestic GST collections in November, pertaining to supplies in October, declined 2.3% compared to November 2024.

“It was hoped that the increase in volume of purchases due to increased affordability from the rate reduction, that too, in the festive period of Diwali which traditionally sees significantly high demand, would offset the drop in revenue due to GST rate reductions, but instead, there is a reduction in the gross domestic GST collections,” said Karthik Mani, partner, Indirect tax at BDO India.

Festive Factors Distorted GST Cut Impact

Not all October sales can be attributed only to GST cuts, and would not carry forward to the coming quarters.

“In Q3FY26, the immediate boost is attributable not only to price corrections and pent-up demand but also to the festive season, particularly in high-elasticity sectors such as automobiles, consumer durables, insurance, FMCG, and daily essentials,” observed Chakraborti.

Once these temporary triggers are removed, what will remain is the actual structural demand, and early data shows it is weaker.

The Macro Picture

India’s macroeconomic indicators show a mixed picture, and in some cases, it’s worrying.

The rupee touched a fresh low of 90.20 per dollar; the index of industrial production (IIP) came in a flat 0.4% in October; and the country’s manufacturing activity hit a nine-month low of 56.6 in November weighed down by US tariffs as well as waning festival growth, as per HSBC Purchasing Managers Index (PMI).

How Are The Macros?

The case for increased consumption has received many a leg up in 2025 — the removal of income tax on earnings up to Rs 12 lakh per annum, monetary easing by the RBI to push for liquidity, as well as the recent interest rate cuts have brought in a large chunk of liquidity into the system.

Global uncertainties weighing in on export linked sectors and elevated job-market anxieties will also play a role in consumption in 2026.

Liquidity has improved because of tax cuts, interest rate reductiuons and the removal of income tax on earning up to Rs 12 lakh, but income growth remains ueneven across sectors.

Historic low inflation ofof 0.25% in October may encourage consumption, but it has to align with other factors.

“Overall, GST cuts have stimulated short-term consumption and moderated inflation, with CPI hitting record lows in October 2025. However, sustaining this momentum will depend on income growth, effective price transmission, and broader macroeconomic stability,” said Chakraborti.

But other macroeconomic factors have to align too, for large-scale buying to go ahead. Experts believe that factors like income growth, credit availability and more will influence consumption, especially amongst lower and middle-income segments.

Rural markets are recovering, but not enough. Nielsen data showed that for seven consecutive quarters till September 2025, rural FMCG sales have outpaced urban growth.

“A sustained decline in inflation has bolstered real wage growth. Real wage growth in urban areas (minimum wages), which was negative in Q3FY25, turned positive in Q4FY25 and has remained so in Q1FY26. Real rural wages growth has been positive and increasing since 2QFY25, contributing to consumption stability,” said India Ratings.

But even with this momentum, rural spending likely won’t compensate for slowdown in auto, appliance and big ticket item sales that are dominated by urban consumers.

Lenders Bullish

Credit card companies and lenders are, however, confident that the sales momentum seen during the festive season will continue.

“With GST reforms improving affordability, rising digital adoption, and continued consumer optimism, we expect this positive momentum to carry forward into the next fiscal,” said Salila Pande, MD & CEO of SBI Card.

Home Credit India’s recent study ‘How India Borrows 7.0’ found that the aspirations of the middle and lower income group consumers have been stoked by the GST cuts.

“We see extremely strong, quantifiable traction in smartphones and consumer durables purchases,” said Ashish Tiwari, chief marketing officer of Home Credit India.

“This shift signifies that consumers are translating their tax-induced savings into aspirational upgrades for better living, which is a powerful indicator of economic health beyond basic needs.”

The auto sector saw a sharp rise in sales after the cuts, around a 21-22% rise in car and two-wheeler sales. And it’s the most optimistic. “The sales volume in the October-March period should grow in double digits,” Shailesh Chandra, the MD & CEO of Tata Motors Passenger Vehicles MD said in an analyst call.

With more disposable income combined with interest rate cuts, as well as other liquidity-injecting measures and lowered EMI burden, as well as benign inflation, all make a good case for rising consumption. Yet, how many individuals will be confident enough to take the first step to increase their consumption in a hazy macroeconomic environment will be the theme for the coming year.

Author:   Katya Naidu

Weak November numbers, muted price transmission and uneven spending patterns all point to the same conclusion that the GST cuts provided a temporary stimulus, not a sustained consumption revival.

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