New Delhi, Sep 26 (NationPress) India’s economic outlook remains broadly optimistic despite facing a turbulent international landscape characterized by geopolitical uncertainties and evolving trade dynamics, as highlighted in the Finance Ministry’s monthly economic review published on Friday.

The GDP growth in Q1 FY26 has exceeded expectations, primarily driven by domestic demand components, which are anticipated to continue playing a crucial role in the upcoming six months, the review indicates.

In light of the need to bolster domestic growth amid enhanced external sector risks, the government has introduced a rationalization of the GST regime. This initiative aims to alleviate the tax burden on consumers, stimulate consumption, and provide protection against tariff impacts. Moreover, it is expected to improve demand visibility for businesses, allowing them to invest in expanding their capacities, according to the report.

The Union government’s reform agenda is projected to shield the economy from the negative impacts of trade disruptions. Regulatory reforms and infrastructure development will be vital for maintaining momentum. Consequently, the near-term outlook is characterized by steady, reform-driven growth grounded in macroeconomic discipline and adaptive economic diplomacy, with ongoing vigilance necessary against external shocks and global market fluctuations, as noted in the review.

Inflation is expected to remain well-controlled, bolstered by replenished reservoirs favorable for the winter crop. Furthermore, the adjustment in GST rates may result in a one-time decrease in inflation over the coming year, the review observes.

Despite facing trade and tariff-related challenges, India’s external sector has shown resilience. Strong service exports and remittances have compensated for the merchandise trade deficit, while gross FDI inflows continue to rise, emphasizing India’s attractiveness as an investment destination, the review points out.

The labor market momentum is likely to remain positive. However, the recent US decision to impose a one-time fee of $100,000 for all future H-1B visas could cause disruptions, necessitating close monitoring of its impact on future remittances and service trade surpluses if the restrictions persist. India is also strengthening its economic partnerships, having signed a bilateral investment treaty with Israel and preparing a Comprehensive Economic Partnership Agreement with Oman to reduce duties, enhance investment, and diversify trade beyond energy imports.

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

With the ongoing reform push, there is a further positive outlook on the nation’s growth prospects. The OECD has revised India’s GDP growth forecast for 2025 upwards by 40 basis points, from 6.3% to 6.7%, attributed to strong domestic demand and the effects of robust GST reforms.

However, the review cautions that the US government's decision to impose a fee on new H1B visa applicants serves as a reminder of the risks posed by trade uncertainties affecting the previously unaffected services sector. While these risks currently seem manageable, they certainly exist.