Bernstein Warns India Growth May Be Driven By Subsidies, Fiscal Support And Offshore Borrowing
· Free Press Journal
India’s economic and corporate performance may be receiving an artificial boost from government subsidies, fiscal support and offshore dollar borrowing, rather than being driven entirely by sustainable productivity improvements, global brokerage Bernstein said in its India Strategy note as per a report by Moneycontrol.
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According to the report, the brokerage argued that investors could be mistaking temporary policy support for durable economic strength.
Since such growth may not translate into stronger long-term corporate returns, Bernstein maintained a cautious view on Indian equities and retained its Nifty target at 26,000.
Earnings Growth Masks Underlying Pressures
The June-quarter results highlighted the gap between revenue growth and profitability. Revenue among NSE 200 companies increased more than 12% year-on-year, marking the strongest expansion in 10 quarters. However, aggregate profit after tax grew only 7-8%.
Foreign Investors Step Up India Buying, Stronger GDP & Earnings Outlook Could Sustain FPI InflowsBernstein also questioned attempts to present a stronger earnings picture by excluding loss-making oil marketing companies (OMCs). OMCs reportedly absorbed around $2 billion in losses during the quarter, while the government bore an additional $8-10 billion through lower excise duties and higher LPG and fertiliser subsidies.
The combined support effectively boosted consumer purchasing power and benefited consumer-facing businesses, even as companies struggled to exercise pricing power. Bernstein found that 78% of surveyed consumer companies either avoided price increases or passed on only part of their higher costs.
Policy Support May Sustain Consumption
The brokerage also highlighted the role of successive government measures in supporting household demand. GST reductions introduced in September 2025 were estimated to have provided households with around $20 billion in additional purchasing power, particularly benefiting discretionary consumption.
Bernstein expects the impact of that stimulus to fade as the benefit of lower taxes is absorbed.
It sees the next major consumption boost coming from the Pay Commission wage revision cycle, which could generate more than $20 billion annually through central government employees and another $30 billion from state governments.
While higher incomes could support discretionary spending among middle- and upper-income households, Bernstein warned that the resulting fiscal burden could eventually limit the government’s ability to maintain public capital expenditure and other subsidies.