BT-C Fore Business Confidence Index: High US Tariffs weigh on India Inc.

It’s been a year of firsts in many ways. Income tax cuts that were unimaginable for most individual taxpayers. A sharp reduction in rates under the goods and services tax (GST) as part of next-generation reforms and record sales during Navratri and the ensuing festive season. Retail inflation at a record low and a string of rate cuts by the Reserve Bank of India (RBI) with expectations of another one in December.

Yet, India Inc remains cautious. After all, another first this year—the 50% tariff imposed by the US on Indian exports—has left many sectors reeling and spooked others even as a trade deal by the end of the year may improve the outlook.

These divergent trends are reflected in the BT-C Fore Business Confidence Survey of 500 chief executive officers and chief financial officers that shows abundant caution and only a little optimism about the impact of the GST rate cuts on sales. The survey, which measured business confidence in the July to September 2025 quarter and was conducted between October 7 and 25, points to a marginal uptick in overall confidence, with some sectors showing weaker sentiment despite the GST rate rationalisation.

The Business Confidence Index rose to 50.6 (on a scale of 100) in the quarter, its highest in 2025 and marginally above 50.2 in April-June of the current fiscal. However, the index remains below the nine-year high of 56.7 recorded in the July-September quarter of FY25.

There is a substantial divergence in sentiment with heavy and light industries reporting higher confidence at 51.5 and 50.4, respectively, compared to the previous quarter. However, the mood is notably glum in the services sector, where it fell to 49.9. The dip came amidst US action on H1-B visas, uncertainty over tariffs and trade deal and advent of artificial intelligence (AI) that is triggering layoffs across industries. The sector covers IT, software, e-commerce, consultancy, and business and financial services.

Similarly, there was disparity even among companies with different sizes. While big and medium-sized companies reported stronger confidence at 52.3 and 51.5, respectively, small and micro industries were less optimistic with business confidence at 49.6 and 49.1, respectively.

Experts say the data is not surprising given the turbulence during the year. While domestic policy has been supportive of growth and consumption, the weaker global environment, particularly due to hefty US tariffs and absence of a trade deal, have sparked newer worries for businesses that were already unsure about demand prospects.

“Given the different themes playing out, there is no singular picture or number for the entire industry in terms of business confidence,” says Madan Sabnavis, Chief Economist, Bank of Baroda. Heavy and infrastructure industries continue to do well given the focus of the Centre and states on capital expenditure.

“The issue is with consumer-based industries and link industries or micro, small and medium enterprises,” Sabnavis says, noting that corporate commentary for the second quarter of the fiscal has not been very positive.

With several MSMEs also exporting output, US tariffs would have lowered their confidence; even those that are getting orders may have had to offer discounts to remain competitive.

Corporate revenue is expected to have grown a modest 5-6% year-on-year in the July-September quarter following an underwhelming performance by power, coal, IT services, and steel sectors, which together account for around one-third revenue of over 600 companies analysed by Crisil. “Continuing geopolitical uncertainties weighed on the IT services sector, with project deferrals likely limiting revenue growth to 1%. In the steel sector, despite volume growth of 9%, revenue is expected to have grown at a moderate rate,” says Miren Lodha, Senior Director, Crisil Intelligence.

Dipti Deshpande, Principal Economist, Crisil, concurs it’s not easy to decipher what’s happening in the economy as there are too many moving parts. “Broadly, tariffs, policy support and structural reforms are the three lenses through which one needs to understand how growth is panning out. For the short term, the big question is—will domestic demand support growth or will export slowdown play a larger role in influencing growth?” she says. Crisil’s assessment suggests consumption is playing a strong role today, she adds.

“But we need to acknowledge that there is pain in pockets. Higher US tariffs have bitten into exports, and by the time a trade deal is struck, maybe at the end of this month or later in the year, some damage would have been caused,” she says, adding that investment demand is also subdued. The agency has maintained its GDP growth forecast for FY26 at 6.5%, the same as the last fiscal, with downside risks from elevated US tariffs for a long period and weaker global growth.

Not surprisingly, businesses are also uncertain about demand, both in domestic and export markets. To a pointed question on their outlook for domestic growth prospects this fiscal, only 39% expect growth to do rise due to better domestic demand while 32% expect it to be slower due to weaker exports.

As of now, this contrasts with expectations of higher growth due to GST rate cuts with several agencies, including the RBI, raising their growth forecast. The RBI expects 6.8% growth this fiscal, more than the 6.5% it had forecast earlier.

For 51% of respondents, continued US tariffs are the top concern for the quarter, while for 35%, low consumer demand is the key challenge. The US tariffs have led to lower orders for 38% respondents; 7% have had to diversify markets. However, 52% of respondents said there has been no impact on their businesses.

GST Cut

The bigger surprise in the BCI is the lack of clarity on the impact of GST rate cuts on demand in the second quarter. The cuts came into force on September 22. Only 27% respondents said they have boosted sales performance; 66% said they have not helped demand at all.

Analysts expect the impact to be more visible from the third quarter and, perhaps in certain sectors. Sabnavis and Deshpande believe the second half will see stronger consumer demand as the cuts play out.

“Sales will improve in the short run due to the cuts, which happened when there is usual festive demand,” says Sabnavis. He adds that the bigger question is whether this will continue post 2026. “To keep consumption up, we need to not only create jobs but create jobs that give more discretionary income,” he says.

Deshpande says consumption is playing a stronger role than investment in supporting growth, thanks to the GST cuts. The cuts have also had a sentimental impact. “The I-T relief that middle-income segments have got, low inflation during the year, which almost all income segments are enjoying, and lower interest rates that benefit those more attuned to debt-financed consumption, are supporting demand in the short term. From the rural side, agri incomes are strong,” she says.

High-frequency indicators show the impact was evident in October. Factory output in September grew by 4% and manufacturing by 4.8%. Following the GST cuts, automobile sales touched a record during Navratri, with the trend continuing during Diwali. Passenger car sales hit a new record in October at 490,000 units, a 17% jump year-on-year. Gross GST revenue grew 4.6% to Rs 1.96 lakh crore although net collections were almost flat with analysts expecting a surge in November data as that will reflect the spending in October. The HSBC India Manufacturing PMI rose to 59.2 in October from 57.7 in September due to a sharp growth in new orders.

“Once the current ‘pent-up’ demand moderates when the festive season ends, what will become critical is whether this momentum is sustained into 2026,” says a report by HDFC Bank economists, noting that on the rural side, they have greater conviction of a continued improvement in demand conditions, aided by an improvement in rural wages and multiple consecutive healthy cropping cycles.

“However, on the urban side, the sustainability of the recovery during the festive season remains tentative,” it says, pointing out that the trifecta of interest rate cuts, GST cuts and tax cuts are expected to start supporting urban demand even as lower inflation boosts purchasing power. “That said, in the job market, while indicators are showing some signs of recovery in pockets, they are not yet decisively positive, with large sectors like software and BFSI still seeing a contraction in hiring intentions,” says the report.

On Dhanteras, at a press conference to discuss the GST rate cuts, Finance Minister Nirmala Sitharaman highlighted record sales of automobiles, consumer durables and FMCG products and underlined that consumption demand is expected to sustain even beyond the festive season.

In its monthly economic outlook, the finance ministry said demand conditions across rural and urban India had strengthened with GST reforms and the festive season, coinciding with reports signalling robust growth in sales. The RBI’s forward-looking survey on urban and rural consumer confidence reveals households are optimistic about economic conditions, employment, income and spending a year from now. More data over the next few months could throw a light on this with even the finance minister pointing out that the festival season in India continues till Sankranti, which is in mid-January, and one should wait for consumption figures until then.

Companies are also more optimistic about prospects in the third quarter; confidence is higher on overall economic situation, demand conditions as well as profits from the second quarter (see GST Cuts, Festive Sales Boost Q3 Confidence).  

The Challenges

Still, numerous uncertainties are keeping a lid on private investment plans. Only 23% respondents are planning higher capital investments this fiscal; 63% said a definitive no.

Lodha, however, says that the manufacturing sector is poised for a pick-up in capital investment, driven by two key trends, albeit with a few short-term hiccups. Firstly, companies are expanding their capacity in conventional manufacturing sectors as they reach high utilisation levels. Secondly, investments are pouring into emerging sectors such as electronics and semiconductors, energy transition, electric vehicles, defence and aerospace, and data centres.

The reduction in GST rates is expected to have a positive impact on consumption-linked sectors, which account for approximately 15% of corporate revenue, Lodha says, adding that high utilisation levels in key manufacturing industries such as oil and gas, steel, cement, passenger vehicles, and two-wheelers, which contribute to around 60% of industrial capex, indicate that this is an opportune time for expansion. But due to uncertainty in the global economic and trade landscape, companies are cautious. The hiring outlook for the third quarter also remains largely unchanged at 4.8 on a scale of 10 from the second quarter’s 4.7.

The advent of AI has also meant that more companies are looking at lower hiring, even layoffs, a trend already visible at giants such as TCS, Meta and Amazon. In response to a question on the most important impact of AI on jobs in their companies, only 28% of respondents said they are looking to reskill their workforce. In contrast, 23% plan to hire less, while 12% are planning layoffs

The ease of doing business also remains a major stumbling block for businesses. As many as 46% of respondents said they have found no change over the years and only 31% said it has improved. A total of 65% said they found GST compliances to be the most difficult, while for 16%, labour laws were the most challenging.

For the finance ministry, which has started preparations for the Union Budget 2026-27, these responses are food for thought on what needs to be done further. The big questions now are whether the GST rate cuts would have the desired impact on growth and consumption and if, and when, the trade deal with the US is signed. Policy responses in the next Budget would clearly be crafted on how these pan out.

@surabhi_prasad