New Delhi, Sep 26 (NationPress) India’s economic outlook is largely positive, even amidst a challenging global landscape characterized by geopolitical tensions and evolving trade dynamics, as highlighted in the Finance Ministry’s recent monthly economic review published on Friday.

The GDP growth in Q1 FY26 exceeded expectations, with domestic demand significantly contributing to this expansion, and this trend is anticipated to continue in the upcoming half of the fiscal year.

In light of the increased external risks, the government is taking steps to bolster domestic growth engines by rationalizing the GST framework. This strategic move is designed to ease the tax load on consumers, stimulate spending, and mitigate the effects of tariffs. Furthermore, it is expected to enhance demand visibility for businesses, allowing them to invest in expanding their capacities.

The government’s reform initiatives are projected to shield the economy from potential trade disruptions. Key areas such as regulatory reform and infrastructure development will be critical for maintaining economic momentum. Consequently, the near-term perspective is marked by consistent, reform-driven growth anchored in macroeconomic stability and proactive economic diplomacy, while remaining alert to external shocks and global market fluctuations, as per the review.

Inflation is anticipated to stay well-managed, with restored reservoirs indicating a favorable outlook for the winter harvest. The adjustments in GST rates may also lead to a temporary dip in inflation within the coming year.

Despite challenges related to trade and tariffs, India’s external sector has shown resilience. Strong service exports and remittances have mitigated the merchandise trade deficit, and increasing gross FDI inflows highlight India’s attractiveness as a destination for investment.

The labor market is expected to maintain its positive trajectory. However, the recent introduction of a one-time fee of $100,000 by the US for future H-1B visas may disrupt this, necessitating close observation of its potential impact on remittances and service trade surpluses if the restrictions persist.

India is further enhancing its economic ties, having signed a bilateral investment agreement with Israel and is in the process of establishing a Comprehensive Economic Partnership Agreement (CEPA) with Oman to lower tariffs, promote investment, and diversify trade beyond energy imports.

The review indicates that the combination of robust growth, macroeconomic stability, and a firm commitment to fiscal discipline over the past few years has led to India receiving its third sovereign ratings upgrade in FY26. Following upgrades from Morningstar DBRS and S&P Global Ratings, the Japanese credit ratings agency Rating and Investment Information, Inc. (R&I) has elevated India’s sovereign rating from BBB to BBB+, while maintaining a stable outlook.

With the emphasis on reforms, there is an optimistic bias regarding the nation’s growth prospects. The OECD has adjusted India’s GDP growth forecast for 2025 upward by 40 basis points, now projecting it at 6.7 percent, up from the previously estimated 6.3 percent in June, owing to strong domestic demand and the positive effects of GST reforms.

However, the review also notes that the US government's decision to impose a fee on new H1B visa applicants serves as a reminder of the potential risks posed by trade uncertainties impacting the previously stable services sector. While the current risks seem manageable, they remain a concern.