GST 2.0, reforms to sustain growth momentum amid global uncertainties: FinMin

The lower GST rate is expected to support a positive demand

The government expects the implementation of growth-enhancing structural reforms, including the GST 2.0 framework, to sustain India’s growth momentum amid a challenging global environment, the finance ministry has said.

Despite external headwinds, the economy “continues to gain momentum,” with the growth outlook for 2025-26 remaining strong, supported by “domestic demand, favourable monsoon conditions, lower inflation, and the positive effects of GST reforms”, the Monthly Economic Review (MER) for September report said.

Structural reforms and government initiatives, including GST 2.0, are expected to mitigate some of the negative impacts of these external challenges, the report said.

The economy gained traction in the second quarter of FY26. “This is particularly significant, as the United States imposed higher tariffs on India in August,” the review said.

GST 2.0

Released by the ministry’s economic division, the report said GST 2.0 is likely to “stimulate consumption and investment across sectors, which in turn fosters employment generation”. The strengthening of domestic activity was driven by “festival demand and GST rate rationalisation”, with the momentum expected to continue in the coming months.

“Moreover, a strong performance in the industries and services sector, along with a stable labour market, will further enhance domestic demand,” it said.

External caution

It did add a warning note, saying “global uncertainties warrant caution and will continue to affect external demand, presenting downside risks to the growth outlook”.

It said policy measures, including GST rate rationalisation, are expected to keep inflation moderate while supporting consumption demand. “Overall prices are likely to remain soft in FY26,” it said.

The combined impact of GST 2.0, RBI’s regulatory reforms and the PM-SETU skilling mission “will help fortify India’s medium-term growth prospects by driving investment, boosting consumption, and expanding employment opportunities,” even as global trade and policy uncertainties continue to pose challenges.

RBI measures 

The Reserve Bank of India’s developmental and regulatory measures are key enablers of sustained growth.

“The RBI’s latest regulatory and development policy measures signal a calibrated response… combining prudence with comprehensive structural reforms,” the report said.

These include a shift to an Expected Credit Loss Framework, risk-based deposit insurance, and rationalisation of external commercial borrowing (ECB) regulations – all aimed at “strengthening the banking sector, improving credit flow, promoting ease of doing business, simplifying foreign exchange management, and internationalising the Indian rupee”.

PM-SETU

The government’s focus on employment and skill development complements these reforms. It hailed the Pradhan Mantri Skilling and Employability Transformation through Upgraded Industrial Training Institutes (PM-SETU) – a Rs 60,000 crore centrally sponsored scheme – which seeks to transform 1,000 government Industrial Training Institutes into modern, industry-aligned training institutions.

“These initiatives and the government’s continued efforts in deregulation are expected to have a positive multiplier effect on economic activity, supporting domestic demand and sustaining growth momentum,” the report said.

Various supply-side high-frequency indicators (HFIs) have displayed healthy trends while demand conditions continued to improve with the GST reforms and festive season sentiments spurring consumption, it said. It has led to both the International Monetary Fund and the RBI revising growth forecasts for FY26 from 6.4 percent and 6.5 percent to 6.6 percent and 6.8 percent, respectively.