Despite US tariffs, GDP gains steam in Q2: FinMin
Say various supply-side high-frequency indicators display healthy trends
image for illustrative purpose
New Delhi: Against a global backdrop characterised by economic and trade policy uncertainty, India’s economy gained momentum in the second quarter of FY26, which is particularly significant, as the US imposed higher tariffs on India in August, according to the Finance Ministry’s monthly report released on Monday.
Various supply-side high-frequency indicators have displayed healthy trends, while demand conditions continued to improve with the GST reforms and festive season sentiments spurring consumption. The growth outlook for FY26 remains strong, supported by domestic demand, favourable monsoon conditions, lower inflation, monetary easing, and the positive effects of GST reforms. Consequently, the IMF and the RBI have revised their growth forecasts for India for FY26 upwards from 6.4 per cent and 6.5 per cent to 6.6 per cent and 6.8 per cent, respectively, the report states.
Looking ahead, 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 and boosting employment generation in the economy. Moreover, a strong performance in the industries and services sector, along with a stable labour market, will further enhance domestic demand, the report further states.
Meanwhile, India’s trade performance remains robust, with strong services exports effectively offsetting the merchandise trade deficit. Even as trade deal negotiations with the US continue, merchandise trade data for September 2025 presented early evidence of diversification of export destinations. The increase in gross FDI inflows signals the country’s appeal as an attractive investment destination, the report further states.
It highlights that recent policy measures, including GST rate rationalisation, are expected to keep inflation moderate while supporting consumption demand. The overall prices are likely to remain soft in FY26.
In the latest meeting of the MPC, while keeping the policy repo rate unchanged at 5.5 per cent with a “neutral” stance, the average headline inflation for 2025–26 has been further lowered to 2.6 per cent, from the earlier projections of 3.7 per cent forecast in June 2025 and the revised 3.1 per cent forecast in August 2025. The forecast for the ongoing Q3 is maintained at 1.8 per cent, while an uptick is anticipated in Q4 and into early FY27. Core inflation is projected to remain subdued through the remainder of the year and into Q1 2026–27.
