GST reforms to propel India’s FY26 GDP growth to 7.4% : NIPFP

NEW DELHI : The Indian Economy is expected to grow by 7.4 per cent in the current financial year, as the effect of goods and services tax (GST) rate rationalisation kicks in and the US Economy performs to its potential, said the National Institute of Public Finance and Policy (NIPFP) in its latest mid-year economic review on Tuesday.

In its April review earlier this year, it had estimated the economy to grow by 6.6 per cent in FY26. While the latest Reserve Bank of India (RBI) estimate projected the economy to grow at 6.8 per cent.

“Largely on the back of robust public sector investment, revival in domestic consumption demand in both the rural and urban areas, goods and services tax (GST) rate rationalisation and the external sector, especially the US performing to its potential, the economy is expected to clock this robust growth,” the economy review said.

However, the mid-year economic review by the autonomous research institution under the finance ministry also presented two alternate scenarios, where the output in the US economy either remains above potential i.e optimistic view or remains below the potential i.e pessimistic view.

If the US output remains one per cent above potential, the economy is expected to grow by 8.8 per cent, while if the US output remains one per cent below potential, the economy is expected to grow by 6 per cent in FY26. 

Besides, the NIPFP also projected retail inflation at 1.6 per cent in the current financial year, on account of moderating food inflation. It however, noted that edible oil inflation remains high and the core inflation is on rise due to sharp price rise seen in gold and silver.

“Our inflation projection is quite lower than the 2.6 per cent estimated by RBI. The inflation is expected to remain 1.1 per cent in Q3 and 0.8 per cent in Q4. (However), buoyant domestic demand propelled by GST rate restructuring presents an upside risk, while moderating energy inflation and Trump tariff induced demand moderation presents a downside risk,” the review said. 

On the trade front, the review noted that most bilateral trade deals primarily benefit the US and called for diversification in the services export as the sector has high exposure and faces “real” risk in case the net of Trump tariffs widens.

“Unlike some countries, India holds very little leverage in merchandise exports and they are concentrated in a few sectors only. While, in the case of services, more than half of India’s services export is to the US and they face risk. Hence, diversification is the key,” the review said.

Source : BS