Sovrenn Times: Macroeconomy Update | 18 August 2025
India Bets on Growth to Keep Fiscal Deficit at 4.4% Despite GST Overhaul
India is targeting a fiscal deficit of 4.4% of GDP in FY26, even as it implements the biggest GST reform since 2017, lowering rates on essentials and electronics to ease consumer costs. While these cuts may initially weigh on revenues, the government expects higher consumption and tax buoyancy to bridge the gap. Officials also confirmed that the GST compensation cess will end by December 2025, removing a temporary but significant revenue source from automobiles, tobacco, and luxury goods. Despite this, policymakers remain confident of meeting fiscal targets by relying on growth-led revenues and improved compliance. The fiscal strategy signals a balance between short-term consumer relief and long-term fiscal discipline.
Finding multi-bagger stocks is essential for building wealth. Discover potential multi-baggers at Sovrenn Discovery.
PSBs Post Record ₹44,218 Cr Profit in Q1; Govt to Review Performance on Aug 20
India’s finance ministry has called a review meeting of public sector banks (PSBs) on August 20, chaired by Financial Services Secretary M Nagaraju, to assess Q1 FY26 results. Collectively, the 12 PSBs reported record profits of ₹44,218 Cr, up 11% YoY from ₹39,974 Cr in Q1 FY25. SBI led the surge, contributing 43% of total profits with ₹19,160 Cr, a 12% rise. In growth terms, Indian Overseas Bank posted the highest jump (76%), followed by Punjab & Sind Bank (48%). On the other hand, PNB saw profits fall 48% YoY to ₹1,675 Cr, the only PSB to report a decline. Other banks like Central Bank (+32.8%), Indian Bank (+23.7%), and Bank of Maharashtra (+23.2%) also contributed to the sector’s strong showing.
GST 2.0: ₹1.8 Lakh Cr Monthly Collections Pave Way for 2-Slab Reform
Eight years after GST’s rollout, India is moving toward “next generation reforms” that simplify the tax structure and spur consumption. With average monthly collections of ₹1.8 lakh crore in FY25 and a tax base exceeding 1.5 crore taxpayers, the system is financially stable enough for rationalisation. The government plans to reduce the current four slabs (5%, 12%, 18%, 28%) into just two—5% and 18%, while keeping sin goods at 40%. This means household staples under 12% may drop to 5%, and big-ticket items like cement and cars under 28% may move to 18%. Since over 70% of GST revenue already comes from the 18% bracket, revenue impact is expected to be limited. The streamlined structure is set to lower classification disputes, minimise inverted duty issues, and ensure consumers benefit directly from reduced rates.
S&P Upgrades 10 Indian Financial Institutions After Sovereign Rating Boost
S&P Global Ratings has upgraded seven Indian banks and three finance companiesfollowing India’s first sovereign credit rating upgrade in 18 years, from BBB-/Positive to BBB/Stable. The move reflects confidence in India’s sound economic fundamentals, with GDP growth averaging 8.8% during FY22–24, the highest in Asia-Pacific, and projected at 6.8% annually over the next three years. Asset quality improvements, stronger profitability, and capitalisation underpin the upgrades, aided by structural reforms like the Insolvency and Bankruptcy Code (IBC), which cut resolution times for bad loans from 6–8 years to under 2 years and lifted recovery rates above 30% (vs. 15–20% earlier). SBI remains the largest beneficiary, while systemic credit risk continues to decline. S&P expects Indian banks and NBFCs to sustain resilience despite pockets of stress, supported by domestic focus, recovery mechanisms, and favourable monetary conditions.
Investing has built enormous wealth for several HNI investors. Learn investing for FREE OUSARGE at Sovereign Education.
₹24,000 Cr PM Dhan-Dhanya Krishi Yojana Targets 100 Lagging Farm Districts
In his longest Independence Day address, Prime Minister Modi announced the rollout of the ₹24,000 crore PM Dhan-Dhanya Krishi Yojana, aimed at transforming 100 underperforming agricultural districts. The scheme will boost productivity, promote crop diversification, expand irrigation and storage, and improve credit access for farmers. Modi highlighted that farmers have already benefited from initiatives like PM Kisan Samman Nidhi, irrigation projects, and quality seed distribution, while 125 crore livestock vaccinations have been administered to fight foot-and-mouth disease. India today ranks 1st in milk, pulses, and jute production, and 2nd in rice, wheat, cotton, fruits, and vegetables, underscoring its role as a global agri-powerhouse. Agricultural exports have also surged past ₹4 lakh crore, strengthening food sovereignty. Modi called farmers the backbone of India’s journey from dependency to self-reliance.