GST 2.0, festive boom keep India’s growth engine running among global headwinds

As the global economy battles policy volatility with slowing demand in China and sticky inflation in advanced economies, India remains an outlier with robust domestic demand and policy reforms, said the Finance Ministry’s Monthly Economic Review (MER) released on Monday.

The MER Sepember, 2025, highlights that while the IMF has raised global growth outlook for this year to 3.2 per cent, the resilience is transient and underpinned by short-term factors such as frontloaded trade and tariffs and the growth momentum is expected to fade in 2026.

Against this uncertain backdrop, India’s economy has accelerated on the back of GST rate rationalisation and bumper festive season.

All indicators up

The introduction of GST 2.0 has boosted consumer sentiment, cut compliance costs and spurred spending across sectors. The effects are visible in every key demand indicator – E-way bill generation hit and all-time high in September, signalling record movement of goods while petrol and diesel consumption rose 8 and 6.7 per cent respectively, from a year ago.

“The lower GST rate is expected to support a positive demand outlook by reducing the tax burden on consumers and businesses, stimulating consumption and investment across sectors,” the MER stated.

Spending on the rise

The festive period brought a surge in discretionary spending. Passenger vehicle sales jumped 34.8 per cent during Navratri, while two- and three-wheeler sales surged 35.3 per cent, reflecting strong rural purchasing power. Retailers and FMCG companies also reported a spike in sales.

The IMF now pegs India’s GDP growth at 6.6 per cent for FY26, while the RBI projects 6.8 per cent, citing resilient demand and policy reforms.

However, the MER sounded a word of caution. “Global uncertainties warrant caution and will continue to affect external demand, presenting downside risks to the growth outlook,” the report said.

Still, it emphasised that the implementation of various growth-enhancing structural reforms is expected to mitigate the negative impacts of external challenges.

RBI reforms

Highlighting the various reform measures announced by the RBI, the report noted that despite a moderation in bank credit growth, the overall flow of financial resources to the commercial sector continues to rise. This is attributed to the growing prominence of non-bank sources of funding that are offsetting the decrease in the flow of bank credit.

Inflation, meanwhile, remains subdued. Retail prices cooled to 1.54 per cent in September, the lowest in five years, aided by a 2.28 per cent deflation in food items such as vegetables and pulses. With the RBI expecting inflation to remain around 1.8 per cent this quarter, household purchasing power has improved further.

On the agricultural front, kharif sowing has been successfully completed, with cereals and pulses recording healthy growth. “Despite a decline in areas sown to oilseeds and cash crops, as well as some crop damage from extreme weather events, the overall outlook for food production remains positive,” the report added.

Published on October 27, 2025