Finance Ministry projects robust growth in FY26, cites GST cuts and festive demand as key drivers

The finance ministry on Monday said India’s growth outlook remains strong, with the recent goods and services tax (GST) cuts amid the festive season stimulating both rural and urban consumption, which could potentially boost investments and employment across sectors. In its monthly economic review for September, the ministry said increase in outbound goods shipments last month — despite an extra 50% tariff imposed by the US, the country’s biggest export market —presents “early evidence of diversification of export destinations.”

India continues to gain momentum despite uncertain global outlook, IT noted. However, it cautioned that the steady global economic activity in recent months is driven by transitory factors.

More Resilience
These include a lower effective tariff rate in the US and frontloading of trade, which mask underlying structural weaknesses. These factors pose downside risks to India’s growth as well, it said, advising against lowering the guard. India’s robust growth outlook for FY26, the ministry said, is “supported by domestic demand, favourable monsoon conditions, lower inflation, monetary easing and the positive effects of GST reforms.”

The government has been focused on making the economy “resilient to external vulnerabilities through structural reforms.” it added. These include GST 2.0, heightened emphasis on skill development, and initiatives to promote research and innovation such as the `11,000-crore Promotion of Research and Innovation in Pharma-MedTech sector scheme. “Together, these initiatives and the government’s continued efforts in deregulation are expected to have a positive multiplier effect on economic activity, supporting domestic demand and sustaining growth momentum,” the ministry said in the review.

The Confederation of All India Traders has reported record festival sales of `6.05 lakh crore this year, aided by the GST breather. The IMF this month raised its 2025 global growth projection to 3.2%, against 3% announced in July. The multilateral body has also revised up its India growth forecast for 2025-26 to 6.6% from 6.4%. Price stability, the ministry said, is expected to sustain, unless there are “shocks stemming from adverse weather events and supply chain disruptions.” GST cuts, on top of other steps, are expected to keep inflation moderate while supporting consumption demand. “Overall, prices are likely to remain soft in FY26,” it said.Inflation hit an eight-year low of 1.54% in September, supported by deflation in food categories. The ministry highlighted the trade resilience in times of tariff uncertainties, pointing at a 4.4% rise in the country’s total goods and services exports in the first half of this fiscal to $413.3 billion. While merchandise exports grew 3%, services exports rose 6.1%. Encouragingly, core merchandise exports (excluding oil and bullion) grew 7.5%, it said.Monetary Support
The ministry acknowledged that the RBI’s recent regulatory and development policy “reflects a calibrated response to the evolving macroeconomic conditions, combining prudence with comprehensive structural reforms.” “These measures are aimed at strengthening the banking sector, improving credit flow, promoting ease of doing business, simplifying foreign exchange management and internationalising the Indian rupee,” it said.

The central bank’s efforts to maintain adequate liquidity within the banking system have played a crucial role in ensuring resources for boosting economic activities, the ministry said. Despite a moderation in bank credit growth, the overall flow of financial resources to the commercial sector continues to rise, thanks to non-bank funding sources gaining prominence, it said.