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Festive Boom, Margin Doom
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Good Morning. The cuts in Goods and Services Tax (GST) rates will be a bonanza for shoppers this Diwali and Navratri. But one person's bonanza is another person's input tax credit nightmare. As buyers celebrate, sellers face the struggle of clearing old stock at old stock rates. Will they ever see any benefits from the rate slash?
The Indian indices retreated on Monday in reaction to H-1B visa fees. Information technology (IT) stocks have lost around $10 billion. The BSE Sensex was down 466.26 points or 0.56%, to close at 82,323.62. The Nifty 50 fell 124.70 points, or 0.49%, to finish at 25,202.35.
In other news, IT trade body NASSCOM said the H-1B visa fees would only have a marginal effect. Meanwhile, smartphone exports to the US from India are falling at an alarming rate.
DECODE THE NEWS
Old Stock, New Tax: GST Cuts Are Squeezing Sellers This Festive Season
What?
As Navratri celebrations start, Indians are getting ready for a bumper festive sales season with lower sticker prices, due to Goods and Services Tax (GST) cuts. But the sellers — both dealers and manufacturers alike — have to dry swallow a bitter pill. With a feeble deadline at hand, dealers, distributors, and manufacturers are grappling with input tax credits, compensation cess, and, of course, the old inventory tax rates — in a new regime.
In case of a few fast moving consumer goods (FMCG) products, white goods and more, GST has been cut from 28% to 18% or even 18% to 5%. The gap between the old and the new rates — leaves companies without a mechanism to collect their input tax credit (ITC).
The GST mechanism allows companies to claim input tax credit. “Imagine a manufacturer who buys raw materials worth Rs 100, on which they pay a GST of Rs 18 (18% rate). When they sell the finished product for Rs 200, they are liable to collect GST from the customer, let's say at a new, lower rate of 5%, which amounts to Rs 10. Without ITC, the manufacturer would have to pay the full Rs 10 to the government,” explained Rohit Jain, managing partner at Singhania & Co, a law firm.
Why?
With ITC, they could have used the Rs 18 credit from the tax paid on raw materials to offset this liability. Not only would they not have to pay the Rs 10, but they would also have an excess ITC of Rs 8 to carry forward for future tax liabilities.
“In most cases, companies can claim input tax credit on their business procurements unless such credit is blocked by provisions of law. An example of such ‘blocked credits’ are motor vehicles such as cars, insurance expenses, amongst others,” said Siddharth Surana, a chartered accountant.
A few experts also believe that the changes are arbitrary, with little time for them to prepare. “When GST was introduced, a lot of time was given for companies to manage their inventory but this time, which is not the case now. They can manage better with a rollover period of two to three months,” said Krishan Arora, partner of tax planning and optimisation at Grant Thornton Bharat.
When can sellers expect to get the benefits of the GST Diwali bonanza?
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EYE ON RETAIL
Hyper-value And New Trends Driving E-commerce Growth In India
What’s Happening?
India has pipped the US to become the world’s second-largest e-commerce market in terms of the number of shoppers.
With 270 million people shopping online, the market is now worth a massive $60 billion as of 2024, a report from Bain & Company said.
Yet penetration remains just 5-6% of overall retail, leaving ample room for growth. A Deloitte–FICCI report projects online retail to rise from $75 billion in 2024 to $260 billion by 2030, doubling its share of total retail as the $1.93 trillion retail market expands.
Why It Matters
E-commerce is steadily formalising India’s heavily fragmented retail market, where over 85% remains unorganised. The shift is most pronounced outside metros: more than 60% of online transactions now come from tier-2 and tier-3 cities.
For many of these consumers, the hurdle was not aspiration but access. Sellers, too, are increasingly from smaller cities, aided by initiatives like ONDC. Experts believe fintech, logistics, AI tools and a thriving startup ecosystem are widening the digital marketplace.
The slowdown in private consumption — from 11% growth pre-pandemic to 8% now— has tempered e-commerce’s pace. Still, Gen Z’s direct spending capacity of $250 billion, combined with quick commerce, trend-first commerce, and hyper-value platforms, points to fresh growth engines. Quick commerce is expanding across demographics, even attracting senior users. Trend-first platforms are shaping new consumer behaviour, while hyper-value commerce is capturing lower-income buyers with zero-commission seller models.
India’s e-commerce story is no longer just about scale, it’s about reinvention. With quick commerce, social commerce, and hyper-value ecosystems reshaping the market, the next question is: which model will define the future of shopping in India?
Watch the full podcast here. This series is supported by Flipkart.
CORE NUMBER
$965 million
This is the value of smartphone exports to the US from India in August, a 58% slide from $2.29 billion in May, according to think tank Global Trade Research Initiative (GTRI).
Why It Matters: Smartphones are India’s biggest export to the US, its top market, and the drop is “counter-intuitive” since they face zero tariffs.
By The Numbers: Smartphone exports were $2 billion in June → $1.52 billion in July → $964.8 million in August
The US bought $10.6 billion of Indian smartphones in FY25 (44% of global exports)
Flashpoint: India’s exports to the US have fallen for three straight months. While higher tariffs explain the slide in gems, textiles, and chemicals, the unexpected crash in tariff-free products like smartphones and pharma has spooked policymakers.
Experts Say: “More worrying is the unexpected crash in tariff-free exports like smartphones and pharmaceuticals, threatening to derail India’s flagship PLI success story,” said Ajay Srivastava, founder of GTRI.
FROM THE PERIPHERY
H1B Marginal Impact?
Nasscom on Monday said the US move to impose a one-time $100,000 fee on H-1B visa applications will have only a marginal impact on Indian IT firms, Business Standard reported. The industry body noted that Indian and India-centric companies have steadily reduced their dependence on H1B visas while stepping up local hiring.
Issuances of H1B visas to leading Indian firms have dropped from 14,792 in 2015 to 10,162 in 2024, and today account for less than 1% of their US workforce. Nasscom added that the levy will take effect only in 2026, giving companies time to strengthen US skilling and recruitment efforts, already supported by $1 billion in investments.
The Core reported that the rule will slow Indian IT professionals’ onshore work and complicate project execution. Indian IT has long faced resistance to sending engineers from India. The White House clarified the fee applies only to new petitions, easing concerns for current visa holders.
Clean Energy Or Bust!
India’s central government is pushing states to buy more clean energy, after many state-run utilities delayed purchases in hopes of cheaper prices. Renewable Energy Minister Pralhad Joshi said at the Confederation of Indian Industry's energy conference that a second round of talks with states will begin soon, as more than 44 gigawatts of clean energy projects remain unsold.
The Lead: The standoff highlights a disconnect between New Delhi’s climate goals and state-level financial or political priorities.
Flashpoint: India has pledged to reach net-zero emissions by 2070, and expand renewable capacity to 500 GW by 2030. But without stronger state participation, the country risks slowing its clean energy transition and straining developers financially.
Tariffs Cut Sparkle
India’s Cut and Polished Diamond (CPD) exports will likely fall by 17-20% in FY26, to about US$11 billion, according to a CareEdge Ratings report. This drop is primarily due to the US’s 50% tariffs on Indian exports, which will increase end-consumer prices and reduce demand.
By the Numbers: Already, this industry was operating on single-digit profit margins and saw a decline of 17.5% in FY25 too. The report says additional challenges are weakened demand from China, inflation and competition from lab-grown diamonds.
Pivot: To prepare, companies are cutting production, lowering inventory, exploring new markets, and seeking policy support.
Core Sectors Rebound
India’s eight key infrastructure sectors recorded a 13-month high growth of 6.3% in August 2025, driven by expansions in coal, steel, and cement production, according to official data released on Monday by the Ministry of Commerce and Industry.
By The Numbers: This marks a sharp improvement from July, when core sector output grew 3.7%, and a turnaround from August 2024, when the sectors contracted by 1.5%. The last time the growth pace matched 6.3% was in July 2024. During the April-August period of the current fiscal year, the eight infrastructure sectors expanded by 2.8%, slower than the 4.6% growth recorded in the same period last year.
Flashpoint: Coal output jumped 11.4%, Steel 14.2%, Cement 6.1%, Fertilisers 4.6%, Petroleum Refinery products 3.0%, and Electricity 3.1%, whereas Crude Oil and Natural Gas fell 1.2% and 2.2%, respectively. Cumulative growth trends were positive for Steel, Cement, and Electricity, but negative for Coal, Crude Oil, Natural Gas, and Fertilisers.
PODCASTS
Markets Mostly Fend Off H-1B Shock
On Episode 685 of The Core Report, financial journalist Govindraj Ethiraj talks to Ajay Bagga, Veteran Market Expert, Dhairyashil Patil as well as President at the All India Consumer Products Distributors Federation (AICPDF).
Markets mostly fend off H-1B shock, IT stocks have mixed response
Gold hits fresh high, will dampen festive season purchases further
New GST rates kick off, FMCG majors absorb losses, traders expect a big boost
Two Thirds of Gen Z consumers say that they look for social media for product discovery. Our new series Eye on Retail focussing on India’s ecommerce growth story
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