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Will Tax Cuts Actually Spur Consumption?
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Good Morning. Next week, everyday items from toothpaste and notebooks to cars and air conditioners will get cheaper, thanks to a sweeping GST cut. The move has sparked optimism that India is headed for a consumption boom. After all, who doesn’t like lower prices? But India’s spending story is more complicated. The real question is whether these cuts will free up disposable income for new purchases or simply help households stay afloat.
In other news, European Union sanctions hit Nayara Energy hard. Meanwhile, a Global Trade Research Initiative (GTRI) report argues that India must invest in sovereign tech systems to prevent disruption during crises.
THE TAKE
Will Tax Cuts Actually Spur Consumption?
A wave of tax cuts on daily-use products and discretionary items like cars, air conditioners, and refrigerators will take effect in a week. The prevailing expectation—including in the stock markets—is that this will trigger a major consumption boom.
But what if it doesn’t?
Certainly, consumers prefer lower prices. However, their willingness to buy more, or upgrade their purchases, depends on a host of other factors that are not being prominently discussed.
The mixed reception to these cuts was summed up by former Finance Minister P. Chidambaram.
In a recent column in The Indian Express, he asked: “If a 5% GST on toothpaste, hair oil, butter, infant napkins, pencils, notebooks, tractors, sprinklers, etc. is good today, why was it bad for the last eight years? Why did people have to pay exorbitant taxes for eight years?”
Of course, we cannot know whether the opposition would have reduced rates had they been in power.
But the core issue isn’t high prices—it’s constrained household incomes.
Stagnating Incomes Across the Country
Before discussing incomes, let’s break down the purchases. High-priced items are often bought with loans and EMIs. An aspirational purchase like a car may happen regardless of whether the price is X or X minus Rs 1.5 lakh (the rough reduction for cars over Rs 10 lakh).
Equally, it's unlikely that someone will buy more soap or toothpaste just because the price is slightly lower. What may happen is that consumers might trade up to premium brands within these categories.
A WorldPanel by Numerator (formerly Kantar) report surveying over 6,000 households shows that expenditure has climbed steadily over the past three years. Urban spends rose from Rs 52,700 to Rs 73,000, while rural spends increased from Rs 36,000 to Rs 46,000.
Yet, financial stress is evident: 38% of respondents said they are “just about managing,” and 45% admitted they are “struggling,” CNBC-TV18 quoted the report saying.
Former Nestle chief Suresh Narayanan told The Core Report that spending on food, rent, and education—non-discretionary items—has been rising.
“Because of very high rentals and the real estate boom… the rental and education component has been increasing at the cost of other essential or discretionary expenditure,” he said. He remained hopeful that the GST reduction would help households balance their budgets.
A recent Reuters poll said home prices in India are expected to rise faster than previously forecasted, driven by demand from wealthy buyers.
Meanwhile, a shrinking supply of affordable housing is forcing millions into increasingly expensive rentals, the report accompanying the poll said.
A Knight Frank report notes a deficit of about 10 million affordable homes—a gap that could triple in five years.
A Colliers official told Reuters strong macroeconomic numbers have not benefited those at the lower end of the pyramid, whose disposable incomes have stagnated.
As more people are forced to rent, urban rents are forecast to rise 5% to 8% over the next year.
So back to our poser, will the rate cuts spur consumption?
The answer is yes, but the extent is unclear.
Savings: The Real Challenge
Most households are still juggling their budgets to see if lower prices will generate meaningful savings—and if so, whether those savings can be allocated to other pressing expenses.
Consumption for a host of macro reasons should remain steady or strong, but it is unlikely to trigger a boom.
We must also wait for data to clarify the impact of the announcements. Auto dealers report better-than-expected sales, but we will need to wait until the end of October, after the festival season, for a clear picture.
In the meantime, the hope is for more price reductions—including in other essential costs like energy and fuel.
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FUTURE PROOF
Industry Leaders Say Agentic AI Is Now About Application, Not Hype
Agentic Artificial Intelligence (AI) has been driving process changes across industries. Each company, from alcobev to a financial institution, is approaching the use of AI differently.
While the technology has existed for a few years and has been used, it is now being looked at in a different light. Raghu Polisetty, global lead at Accenture Strategy and Consulting, said that a key difference he has been observing is the depth of questions from clients.
“The key question coming from most clients is — how do we take this technology to unscale it while not compromising on compliance, data privacy, and, of course, the brand trust?” Polisetty said during the panel discussion at the Accenture B-School Challenge Season 9 Grand Finale.
One of the toughest questions faced by Accenture, according to Polisetty, is how to reinvent the enterprise, inside and out.
Democratise AI
Gunjan Shah, CEO of Bata India, said that at this juncture, AI literacy was crucial to discover its possibilities. “If you're able to democratise this entire, at least the engagement with the topic itself is a big, big shift, right? That itself will spawn a whole bunch of innovative business models inside or outside,” Shah said.
In the alcobev industry, one of the uses has been to understand the consumer, said Nilesh Patel, country head at Danish brewer Carlsberg. “What then motivates them to then choose the brands, and then what then motivates them to go and buy again and again the same brand?” said Patel, who was present on the panel.
Jyotsna Sharma, chief financial officer and head of information technology at Bridgestone, said she sees massive shifts coming to every industry, especially finance, thanks to AI. “It's going to be more autonomous, and we will see a lot more coming up with the use cases in future,” Sharma said.
A New World?
As did Amazon when the internet became big, agentic AI could unlock new business models. “A business model that was just not possible before that (could come up in the future). So what kind of business model gets unlocked with AI now? It's hard to imagine today,” said Norbert Fernandez, Co-Founding Partner of Kenro Capital.
And while new business models may be unlocked, what happens when old businesses like automotive adopt it? How should they manage employee apprehension?
“I think organisations do have to pay attention before they jump headlong into AI implementations,” said Sandhya Shekhar, advisor at Innovation Digital and Business Strategy and independent director of several companies.
How can employers and employees balance learning technology and implementation with empathy?
Brought to you in partnership with Accenture In India.
FROM THE PERIPHERY
Nayara’s Sanction Saga
EU sanctions are squeezing Nayara Energy’s access to non-Russian crude. The Rosneft-backed refiner imported no oil from Iraq or Saudi Arabia in August and September, relying almost entirely on Russian barrels.
Break: After the EU sanctioned Nayara in July, compliance hurdles in shipping, insurance, and payments have disrupted supplies and forced the company’s Vadinar refinery to cut run rates.
Future: India’s Russia connection has angered the US too. Previously, the US imposed a 50% tariff on two-thirds of Indian exports. Since then, Western leaders have discussed placing even more pressure on India and China for buying Russian oil.
Develop Indian Tech, Says GTRI
India must cut dependence on US digital systems and develop sovereign solutions, the Global Trade Research Initiative (GTRI), a think tank focussing on trade, technology and investment, argues in a recent report. The report warned of reliance on foreign tech, specifically US technology, in case of disruption during crises or data exposure.
Outcome: In fact, in late July, Microsoft suspended services to Indian refinery Nayara Energy, after the EU sanctioned it because of its ties to a Russian entity. Rosneft, a Russian state-owned oil company, owns 49.13% of Nayara Energy. But, after Nayara took Microsoft to court, it restored services again.
Next Steps: GTRI’s report recommends a “Digital Swaraj Mission” by 2030, calling for sovereign cloud hosting, a national operating system, greater Linux adoption, local cybersecurity tools, and indigenous AI platforms.
Festive Season Bonanza
Mercedes expects highest-ever sales during this year’s festive season, said CEO and MD Santosh Iyer. He credited his optimism to the government’s recent GST rationalisation announcement–though luxury cars now pay a higher GST of 40%, the government removed a compensation cess, which effectively reduces the total tax.
Trigger: Iyer said that the new GST could reduce prices by 6-8%. But, he also added that another pain point is the state’s taxes, and urged state governments to charge a uniform road tax across the country.
Setting: This year saw a rise in the number of luxury automobile players in India: Tesla entered the Indian market with a 60 lakh rupee Model Y, though the company has received just over 600 bookings. On the other hand, its global competitor BYD has sold more than 10,000 units (of varying prices) across the country.
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