Festive Cheer and Tax Reforms Ignite Consumer Spending
India's economy demonstrated remarkable resilience in October, with consumption witnessing a significant surge fueled by the festive season and recent rationalization of Goods and Services Tax (GST) rates. According to the latest EcoCapsule report from SBI Capital Markets released on Monday, this uptick marks a decisive turnaround in demand after a sluggish monsoon quarter, with both households and businesses increasing their expenditure.
Key Indicators Point to Robust Domestic Demand
The investment banking division of the State Bank of India based its optimistic assessment on a series of powerful economic indicators. Vehicle sales skyrocketed by 41% year-on-year, while digital payments and festive spending reached their highest levels in years. Specifically, transactions on the Unified Payments Interface (UPI) hit an unprecedented all-time high of 2.7 billion. Furthermore, Diwali sales climbed by an impressive 25% to exceed ₹6 trillion, underscoring the strength of domestic demand in propelling India's growth amidst weak global trade and exports.
The report stated, "With PMI (purchasing managers' index) indicators maintaining their sanguinity and continued spending push from the government in terms of capex and revex, the softness seen due to heavy monsoons in Q2 seems to have made way for a sunny Q3." It further added that nominal GDP growth is expected to be around 8.5% year-on-year for July-September FY26, with real GDP being supported by a low deflator and the ongoing consumption recovery.
Sustained Momentum and Economic Outlook
This consumer-led boom has effectively counterbalanced the impact of weak exports and global economic uncertainties. The report highlighted that the Manufacturing PMI expanded sharply to 59.2 in October 2025, driven by a faster increase in new orders. This buoyant demand, aided by GST relief and productivity gains, led producers to raise output prices at the fastest pace in 12 years.
On the financial front, bank credit is showing signs of revival, primarily driven by retail lending. The credit-deposit ratio has once again crossed the 80% mark. SBI Caps expects a sustainable pickup in credit growth, projecting it to be 1.3 to 1.5 times the nominal GDP growth in FY26.
Externally, the Reserve Bank of India (RBI) intervened aggressively in the currency markets, selling $7.7 billion in August to stabilize the rupee after it slid to record lows against the dollar. While foreign portfolio inflows recovered in October, the current account deficit (CAD) is projected to remain manageable at about 1% of nominal GDP in FY26, with India's substantial $700 billion forex reserve acting as a strong buffer against global volatility.
