Economy can sustain high-growth trajectory in FY27, recent GST reforms to help: Finmin review
New Delhi: Sustaining economic activity while preserving price stability will be policymakers’ focus in the second half of the current fiscal year through March 2027, the Union finance ministry said on Thursday, while retaining its growth forecast for the country for the September quarter at 7.35%.
“The Indian economy may remain well-positioned to sustain its expansionary trajectory through the rest of FY27,” it said, highlighting this month's upward revision of growth forecasts for India by several global agencies, including the International Monetary Fund (IMF) and World Bank, to 7% or above.
In its monthly economic review for October, the department of economic affairs (DEA) said the recent process reforms pertaining to the goods and services tax (GST) “will further ease compliance and working capital constraints for businesses”.
The GST Council this month decided to expand and expedite refunds for businesses, curb officers' power to arrest people suspected of tax evasion, and restore certainty to day-to-day compliance, among other critical measures.
There are still “considerable” global uncertainties, including elevated oil prices and inflation, that warrant constant vigilance, the review cautioned.
However, robust domestic demand, sustained investment activity, a resilient financial sector, and proactive supply-side management have underpinned India’s resilience in growth, the DEA said.
The review said that healthy credit growth and recent trade agreements are expected to provide additional support for consumption, investment, and exports.
The country’s financial sector, meanwhile, showed notable resilience during the period, remaining relatively insulated from rising global sovereign bond yields and volatile global equity markets, the review said.
While the global economy weathered the West Asia war better than expected in the September quarter, higher energy prices renewed inflationary pressures and prompted monetary tightening in several major economies, it said. The IMF has projected global growth to slow to 3.1% in 2026 from 3.5% in 2025, with risks tilted to the downside.
In comparison, India’s growth momentum has held firm. High-frequency indicators across industrial output, energy consumption, port traffic, GST collections, and automobile sales recorded stronger growth in the September quarter than in the previous quarter, the review said.
“Building on growth of 7.8% in Q1, the department’s nowcasting model estimates real gross domestic product (GDP) growth at 7.35% in Q2 FY27,” the review said, maintaining the forecast made in September's review. The government will release the September quarter growth data in late November.
Reflecting these favourable domestic trends, the IMF has raised its FY27 growth forecast for India by 60 basis points to 7%. The World Bank, Organisation for Economic Co-operation and Development (OECD) and RBI project the FY27 India growth at 7.1% after the economy grew at a faster-than-expected pace of 7.8% in the June quarter.
“Strong industrial dynamics, resilient services activity, and robust domestic credit growth—complemented by structural and tax reforms—continue to reinforce domestic demand and private investment,” it said.
The review flagged persisting downside risks to inflation from an intensifying El Niño that threatens soil moisture during the upcoming rabi sowing season, as well as demand-side pressure during the festive period.
Elevated crude oil prices and maritime freight disruptions across the West Asian transit routes have already pushed up input costs, although recent RBI measures to supply direct dollar liquidity to public-sector oil-marketing companies and curb currency speculation may help buffer extreme exchange rate volatility and mitigate imported inflation risks.
India’s headline retail inflation accelerated by 71 basis points to touch a 23-month high of 5.54% in September, driven by elevated food and fuel prices. But about 64% of the items in the Consumer Price Index basket continue to record inflation well below 4%, the midpoint of the Reserve Bank of India’s (RBI) 2-6% inflation target band.
As inflationary pressures persist amid the West Asia war, RBI this month hiked the repo rate by 25 basis points and changed its stance from neutral to calibrated tightening.
“Going forward, the efficacy of the recent rate hike in containing secondary inflation effects will depend on the central bank's active liquidity management,” it said.
Meanwhile, supply-side interventions, such as onion stock releases by the government, stockholding limits on sugar dealers, and import duty cuts on crude edible oils, are expected to ease price pressures on key kitchen staples.
The review also indicates the direction of the government’s likely interventions to push manufacturing.
“Going forward, increasing scale, domestic value addition, supply chain depth, and export competitiveness will remain important to broadening the manufacturing base,” it said.
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