Global uncertainties present downside risks to the global outlook, according to a Finance Ministry report released on Monday. However, it is hopeful that structural reforms and initiatives such as GST 2.0 expected to mitigate some of external challenges.
“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 monthly economic review (MER) by Economic Affairs Department of the Finance Ministry stated.
The overhaul of the GST rate structure, effective from September 22, reduced the number of basic rates from four (5, 12, 18 and 28 per cent) to two (5 and 18 per cent) . The government expects this, along with the relief in the income tax, announced in the Budget to l help the common men to save and more and consequently spend more.
However, the MER also sounded a word of caution. “Global uncertainties warrant caution and will continue to affect external demand, presenting downside risks to the growth outlook,” the report said. Still, it emphasised that the implementation of various growth-enhancing structural reforms and government initiatives, including GST 2.0, is expected to mitigate some of the negative impacts of these external challenges.
Highlighting the various reform measures announced by the RBI earlier this month, the report noted that despite a moderation in bank credit growth, the overall flow of financial resources to the commercial sector continues to rise, This is attributed to the growing prominence of non-bank sources of funding that are offsetting the decrease in the flow of bank credit. “The full implementation of the RBI’s latest Developmental and Regulatory Policies is anticipated to enhance the efficiency of credit allocation, strengthen the resilience of the banking sector, and facilitate the economy’s integration into global financial markets under more favourable conditions,” it said.
On the inflation front, the report said 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 its latest meeting, the Monetary Policy Committee ( MPC) kept the policy repo rate unchanged at 5.5 per cent with a ‘neutral’ stance, while lowering the average headline inflation for 2025–26 to 2.6 per cent, from the earlier projection of 3.7 per cent in June 2025 and the revised 3.1 per cent forecasted in August 2025.
The inflation forecast for the current 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.
On the agricultural front, kharif sowing has been successfully completed, with cereals and pulses recording healthy growth, reflecting favourable growing conditions. “Despite a decline in areas sown to oilseeds and cash crops, as well as some crop damage from extreme weather events, the overall outlook for food production remains positive, underpinning both rural income and market stability,” the report added.
Published on October 27, 2025