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Is India’s growth outlook for FY26 robust despite US tariff increases? New Delhi, Oct 27 (NationPress): In a global environment marked by economic and trade policy uncertainty, India's economy has shown resilience, gaining traction during the second quarter of FY26. This is noteworthy, particularly since the United States implemented increased tariffs on India in August, as highlighted in the Finance Ministry’s monthly report released on Monday.

High-frequency indicators on the supply side reveal positive trends, while demand conditions are improving, fueled by GST reforms and festive season optimism which is driving consumption. The growth forecast for FY26 remains promising, bolstered by robust domestic demand, favorable monsoon conditions, reduced inflation, monetary easing, and the beneficial impacts of GST reforms. As a result, the IMF and RBI have both revised their growth projections for India for FY26 upwards, from 6.4% and 6.5% to 6.6% and 6.8%, respectively, as noted in the report.

Looking forward, the reduced GST rate is anticipated to foster a favorable demand outlook by alleviating the tax burden on consumers and businesses, thereby stimulating consumption and investment across various sectors and enhancing job creation in the economy. Furthermore, strong performance in the industrial and services sectors, coupled with a stable labor market, will further boost domestic demand, the report indicates.

Meanwhile, India’s trade performance remains strong, with robust services exports effectively counterbalancing the merchandise trade deficit. As trade negotiations with the US progress, merchandise trade data from September 2025 reveals early signs of diversifying export destinations. The rise in gross FDI inflows underscores the country's attractiveness as an investment hub, according to the report.

It emphasizes that recent policy initiatives, including GST rate adjustments, are expected to keep inflation in check while supporting consumption demand. Overall price levels are likely to remain stable in FY26.

In the latest MPC meeting, the policy repo rate was held steady at 5.5% with a “neutral” stance, while the average headline inflation forecast for 2025–26 has been revised down to 2.6% from earlier estimates of 3.7% made in June 2025 and 3.1% in August 2025. The forecast for the ongoing Q3 is kept at 1.8%, with an anticipated increase in Q4 and into early FY27. Core inflation is expected to remain subdued through the rest of the year and into Q1 2026–27.

The report also mentions the agricultural sector, noting that kharif sowing has been successfully completed, with cereals and pulses exhibiting healthy growth due to favorable conditions. Despite a decrease in the area sown for oilseeds and cash crops and some damage from extreme weather events, the overall outlook for food production remains optimistic, supporting both rural income and market stability.

In the financial sector, despite a slowdown in bank credit growth, the overall flow of financial resources to the commercial sector continues to rise, as non-bank funding sources gain prominence, compensating for the decline in bank credit. The complete implementation of the RBI’s latest Developmental and Regulatory Policies is expected to enhance credit allocation efficiency, bolster the resilience of the banking sector, and facilitate the economy's integration into global financial markets under more favorable conditions.

Nevertheless, global uncertainties warrant caution and may impact external demand, posing downside risks to the growth outlook. The execution of various growth-enhancing structural reforms and government initiatives, including GST 2.0, is expected to alleviate some of the adverse effects of these external challenges, the report concludes.