The GST reform will progressively deliver a positive impact on the
Indian economy by enhancing ease of doing business, lowering retail prices and strengthening consumption growth drivers, according to an article in the Reserve Bank of India’s September Bulletin.
The bulletin said global uncertainty remained elevated in the wake of US tariffs on major trading partners and renewed concerns over the fiscal health of advanced economies, PTI reported.
“The landmark GST reforms should progressively result in a sustained positive impact through significant gains in ease of doing business, lower retail prices and strengthening of consumption growth drivers,” the article noted.
The government rolled out GST 2.0 last week, introducing a simplified two-rate structure of 5 per cent and 18 per cent, replacing the earlier four-rate duty regime. The new rates came into effect on September 22.
The bulletin said the Indian economy demonstrated marked resilience, as seen in the five-quarter high growth recorded in Q1 2025-26, driven by domestic demand. CPI-based headline inflation edged higher but remained below the target rate for the seventh consecutive month. System liquidity stayed in surplus, aiding the pass-through of monetary policy easing.
Equity markets saw two-way movements during August-September, while the current account deficit moderated in Q1 compared with last year, supported by robust services exports and strong remittance inflows.
On the September GST Council decisions, the article said they had “set in motion major structural reforms in the GST regime, simplifying rates and processes.” The measures addressed inverted duty structures, streamlined compliance, and particularly benefited MSMEs and startups. These reforms are expected to strengthen tax buoyancy, boost compliance, and support ease of living alongside ease of doing business.
On the impact of the 50 per cent US tariff on Indian exports, the article said the immediate effect may be limited to select sectors, as about 45 per cent of India’s shipments to the US — including key products such as smartphones and pharmaceuticals — are exempt. Despite trade uncertainties, merchandise exports showed resilience during April-August 2025-26, while the S&P sovereign rating upgrade underscored the strength of India’s macroeconomic fundamentals.
The RBI bulletin said the Q1 GDP estimates reaffirmed the resilience of domestic drivers, with August high-frequency indicators showing manufacturing and services activity at a decadal high. “In this scenario, the growth outlook for H2 is one of optimism. Healthy corporate balance sheets and the focus on structural reforms by the government are the bright spots of the economy,” it added.
The report said stronger kharif sowing is expected to sustain agricultural momentum and keep food prices in check. The transmission of front-loaded monetary policy easing has been “robust,” and coupled with income tax relief for households and job creation measures, is set to drive a pick-up in consumption in H2, potentially creating a virtuous cycle of higher investment and growth.
High-frequency food price data for September indicated rising cereal prices, a mixed trend in pulses, firmer edible oil prices in mustard, sunflower and palm, and easing groundnut oil rates. Prices of potato, onion and tomato softened, with tomato showing a sharp decline.
The bulletin also said global uncertainty continues to cloud the outlook, with lingering US trade policy concerns, fiscal stress in advanced economies, and geopolitical risks. However, the global PMI rose to a 14-month high in August, with both manufacturing and services activity expanding.
External sector stability was also highlighted. The current account deficit remained contained, supported by services exports and remittances, while net FDI inflows touched a 38-month high in July. Foreign exchange reserves stayed adequate.
The Reserve Bank clarified that the views expressed in the bulletin are those of the authors and do not represent the central bank’s official position.
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