Festive season data lifts India’s economic outlook despite tariff pressures: Report

NEW DELHI: A challenging external environment, coupled with the continuing impact of tariffs, is expected to keep future growth estimates subdued, according to a report by SBI Mutual Fund.

However, the report stated that high-frequency indicators during the festive season have painted a more optimistic picture, especially with strong demand seen in high-value discretionary items such as automobiles and household appliances. It stated, “A challenging external environment coupled with the impact of tariffs was expected to keep future growth estimates subdued, however high frequency data for festive season… looks promising”.

Financing activity in these segments has also remained robust, pointing to resilient consumer sentiment despite global headwinds. The report noted that the impact of the recent GST cuts is gradually working its way through the economy. Overall GST collections for the month of October were in line with expectations, indicating steady consumption momentum.

On the inflation front, conditions remain supportive, with forward estimates anchored closer to the target level even as concurrent numbers continue to print lower.

The report highlighted that the festive season, marked by strong demand but fewer working days in October, resulted in system liquidity tightening. This was primarily due to higher cash in circulation — an expected phenomenon during festive months — and possible intervention by the Reserve Bank of India (RBI) in the spot forex market, where the central bank may have supplied US dollars while withdrawing Indian rupee liquidity.

Consequently, overnight money market rates remained elevated with intermittent volatility. Even as the recent Cash Reserve Ratio (CRR) cuts continue to transmit through the system, core liquidity has been steadily reducing. This trend, according to the report, has opened up expectations for potential Open Market Operations (OMOs) by the RBI in the fourth quarter to maintain adequate liquidity conditions.

Looking ahead, the forward outlook on growth and inflation, along with evolving risk factors, suggests there is some room for further monetary support. The December monetary policy review is expected to remain “live” for what could possibly be the last rate cut in the current cycle.

The report emphasized that despite ongoing debates about the effectiveness of additional rate cuts, the current macroeconomic context provides sufficient space to keep monetary and liquidity conditions supportive of growth. The report concluded that there is no case currently to speculate on a policy reversal. (ANI)