Indian Economy Builds Strong Foundation for Second Half of Fiscal Year
The Indian economy has stepped into the second half of the fiscal year 2025-26 with a robust and stable foundation, according to the latest assessment from the finance ministry. Released on Thursday, the October monthly economic review highlighted that multiple positive factors are supporting this strong position, including easing inflation pressures, resilient domestic demand, and significant tax reforms that have recently been implemented.
GST Reforms Provide Measurable Boost to Consumption
The rationalization of goods and services tax (GST) rates has delivered what the ministry describes as a "measurable boost" to consumption across the country. This positive development is strengthening India's overall growth outlook significantly. The GST Council's new two-slab structure of 5% and 18%, which became effective on September 22, has reduced tax rates on numerous household goods, putting more money back into consumers' pockets.
According to the ministry's analysis, the tax changes have directly improved household disposable income, with retail inflation dropping sharply to 0.25% in October from 1.44% in September. This substantial decline can be attributed to multiple factors including the GST reductions, a favorable base effect, and softer food prices that have provided relief to household budgets.
Strong Economic Indicators Reflect Broad-Based Recovery
The positive impact of these economic policies is clearly visible across various high-frequency indicators. The ministry specifically pointed to higher e-way bill generation, record-breaking festive-season automobile sales, robust Unified Payments Interface (UPI) transaction values, and a notable increase in tractor sales as evidence of strengthening demand patterns.
These trends suggest that economic recovery is becoming more broad-based, with both rural and urban markets showing signs of improved demand. The ministry noted that the full impact of these developments will become clearer over the next two quarters as more data becomes available.
India's GDP growth had already reached a five-quarter high of 7.8% in the first quarter, while preliminary estimates suggest second-quarter growth could reach 7.3%. The ministry's report stated that "overall, the economy enters the second half of FY26 on a stable footing, anchored by well-contained inflation, resilient domestic demand and supportive policy dynamics, even as global uncertainties warrant continued vigilance."
External Challenges Require Continued Vigilance
While domestic conditions appear favorable, the ministry's report also highlighted several external challenges that require careful monitoring. Global trade policy uncertainty remains elevated, with India's merchandise exports declining by 11.8% in October. Meanwhile, imports rose by 16.6%, largely driven by increased inflows of gold and silver.
On a positive note, services exports reached a record $38.5 billion, demonstrating the continued strength of India's service sector in international markets. The ministry also flagged concerns about the potential impact of the 50% tariff imposed by the United States, which includes a 25% penalty for importing Russian oil.
The report warned that shifting trade policies worldwide, ongoing geopolitical tensions, and financial market volatility could potentially affect India's export performance and investment flows in the coming months. Despite these external headwinds, the domestic economic foundation appears strong enough to navigate these challenges effectively.
