V Vaidyanathan, MD & CEO of IDFC First Bank, said 2027 will likely be a “lift-off year” for the banking sector. He explained that 2026 has been subdued due to the repo rate pass-through and lingering issues in microfinance, but those will form the base case by 2027. “Not just credit growth, but profitability should also look meaningfully better next year. At least for our bank, we expect 2027 to be significantly stronger,” he noted.On the trade front, Santosh Iyer, MD & CEO of Mercedes-Benz India, highlighted the potential of free-trade agreements (FTAs) under negotiation, particularly with the EU. He said free trade is not only about tariffs but also about harmonising regulations, which would boost exports and expand access to developed markets. More than 90% of cars sold by Mercedes-Benz in India are produced locally, while a small share of high-end imports such as G-Wagons and Maybachs, continue to face allocation challenges due to global demand.On consumption, Mohit Malhotra, CEO of Dabur, pointed to the expanding middle class as a key driver. He said the middle-class base of 50 crore consumers is projected to rise to 70-crore by 2030, boosting demand. Income tax and indirect tax reforms are also expected to free up household budgets.
These are the edited excerpts of the interview.Q: How do you see the expansion of India’s middle class and recent tax reforms translating into higher consumption over the next few years?Malhotra: In terms of tangible numbers, if you ask me to illustrate it, in India, the middle-class accounts for roughly 50 crore consumers in the country, and this is coming at a time when consumption was extremely sluggish in urban India, and urban areas are comprised of the middle class. This 50-crore consumer base is expected to go up to around 70-crore by 2030, so a huge improvement in the middle-class segment of the Indian industry is expected, and this improvement, or these reforms, are going to only improve consumption.Let me take an example of a ₹25,000 earning household per month. Now, approximately ₹800 to around ₹1,000 on a ₹25,000-earning household is the impact. So, the annual impact, if I look at income tax reforms, direct taxes and indirect taxes, will be around ₹17,000-20,000 on a ₹1.5 lakh earning household for the whole year. This is substantial and is going to translate into a consumption boost, in my view.Q: That certainly is the hope. But you were talking about that 93% price point earlier. How are you likely to address it? Are we likely to see more changes as far as grammage is concerned, especially on these low-ticket items?Malhotra: So, India relies on these magical price points, which we call magical price points. One-rupee, five-rupee, 10-rupee, 15-rupee, and 20-rupee price points contribute around 40 to 50% of the overall consumption of the entire basket of SKUs that we sell.Also Read | Rural demand picking up but urban revival yet to come, says JPMorgan’s Latika ChopraSometimes, when a consumer comes to a retail outlet, he says he doesn’t want a particular brand. The rural economy accounts for around 60% of the total consumption, so he says, “Mujhe 10 rupaye wala pack de dijiye.” And he doesn’t talk about a brand at all. Therefore, these are magical price points. Such magical price points cannot be breached. And therefore, in the beginning, we are trying to take it down to around 93, but eventually, it will lead to a commensurate grammage increase in these SKUs.Q: All of this is probably, or hopefully, going to result in an increase in credit requirements. At the bank, how are you seeing all of this play itself out? What’s the target that you’re working with, and what’s your expectation?Vaidyanathan: First, the GST 2.0 impact itself. Let me just say that about ICRA estimates, SBI research estimates – all are pointing to a consumption lift-off of close to about a ₹2 lakh crore. Banking system credit requirement. That could be around ₹1.7 to 1.8 lakh crore. And that could mean about a 10% increase in growth, which means that last year, whatever the growth rate for the country was, it would be plus 1% in our estimate. That’s very significant.Secondly, where is the growth going to come from? This growth is going to come from two cuts. One is the essential items like food, paneer, milk, etc., which have come down from 5% to 0%. These are consumption items that people were already buying, but now without the GST of 5%, which is a good thing in terms of the segment it addresses. But the significant growth will come from the consumption cuts on items that came down from 28% to 18%. For example, car prices are now down 10%. A 10% fall on a ₹10 lakh car means ₹1 lakh, which is a big amount.Let me explain how this may translate in terms of EMI. If you think of a ₹10 lakh car, which will now cost nine, assuming a loan amount of ₹7 lakh, the EMI earlier would have been ₹16,500. Now EMI would be ₹14,500. So, ₹2,000 per person per month for 60 months is the reduction in people’s EMI.On top of this, like Santosh Iyer pointed out, interest rates also came down. So, product cost goes down. Both things are very significant. And this is a material moment. Additionally, the government also reduced the income tax rates. All three things together – interest rates, tax cuts, and cost reductions – make me believe that 2027 will be a lift-off year.Q: The banking sector has already had a very good run. When you say 2027 is going to be a lift-off year, what could that mean in terms of profitability?Vaidyanathan: Profitability in 2027 will be very good, in my opinion, because 2026 is kind of suppressed because of the repo rate that got passed on, and some more will get passed on this quarter. But all that will become a base case, including the microfinance issue that happened. So, 2027 will be coming off a low base. So, in a profitability sense, I’d say that not just credit growth should look better, but profitability also should look meaningfully better next year. At least for our bank, we will look meaningfully better in 2027.Q: Let’s talk a little bit about reforms and the road ahead. What we are seeing at this point is a move to try to ink as many free trade agreements (FTAs) as possible. The EU-India FTA, which has been long in the making, is expected to reach some sort of conclusion, as far as negotiations are concerned, by the end of this year. Will that materially change your plans for India?Iyer: No, for sure. We, as multinationals, have always advocated free trade because we feel that economic growth is significant whenever borders open up. And it’s not just about the tariffs, it’s also about harmonising regulations, for example, between countries. And the Indian automotive industry has also come of age. Access to developed markets, which have money in their pockets, allows us to sell and export more.Also Read | Power, defence, and Middle East orders to drive India’s capex, says JPMorganAs far as we are concerned, today, more than 90% of the cars we sell in India are locally produced. So, they hardly have a 15% tariff when it comes to parts and components. So that won’t change.The 5%, which is our CBU imports, like the exotic cars, the G-Wagons, the Maybachs, there is a lot of expectation and anticipation that prices may come down, but in reality, we would say no. Because by the time this materialises, there is already a 10% gap between Indian pricing and European pricing.On top of that, from a contribution perspective as well, the challenge for India is that we don’t get allocations. There is much more demand for these cars globally. Some of these cars even have a waiting period running to a year. So, what would improve is if customers got better access to cars much faster. We may get even more cars allocated to India once the FTAs happen.But in the larger scheme of things, two-way trade will go significantly higher. That opens up new opportunities for us as well to look at India differently. We have been 30 years in India, we call it strategic patience. But from the numbers, in these 30 years, we sold more than two lakh Mercedes-Benz cars. The one lakh Mercedes-Benz milestone was achieved in the last six years. So that’s the kind of demand and uptick we see now.Q: So, when do you expect to sell the next one lakh Mercedes-Benz cars? How much do you believe you’re going to be able to crunch the timeline?Iyer: It depends on all the forecasts. We have to look at all the factors. Forex is one aspect where we are not able to put a finger on it. A 5% increase in price could take us back to pre-GST 2.0 pricing, which means back to square one. This may happen as early as January 1 of next year.Watch the interview in the accompanying videoCatch all the latest updates from the stock market here
