GST reform to positively impact on Indian economy by promoting ease of doing business: RBI bulletin

An article on the state of the economy published in the Reserve Bank of India’s (RBI) September Bulletin has said that the GST reform will have a positive impact on the Indian economy by promoting ease of doing business, lowering retail prices, and strengthening consumption growth drivers. It further said global uncertainty remained elevated in the wake of the imposition of US trade tariffs on major trading partners and renewed concerns over the fiscal health of advanced economies. It said ‘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 government came out with the GST 2.0, a two-rate structure (5 per cent and 18 per cent), replacing the earlier four-rate duty regime. The new rates have come into effect on September 22.

The article said the Indian economy exhibited marked resilience as evident from the five-quarter high growth during Q1 2025-26, propelled by domestic drivers. It noted that consumer price index (CPI) based headline inflation edged up, but remained well below the target rate for the seventh consecutive month. It added system liquidity remained in surplus, facilitating the pass-through of policy rate cuts. It further pointed out that Indian equity markets witnessed bidirectional movements during August-September. India’s current account deficit moderated in Q1 over the last year, supported by robust services exports and strong remittance receipts.

Moreover, the article said the Q1 2025-26 GDP estimates reinforced the resilience of domestic growth drivers. High-frequency indicators for August show manufacturing and services activity at a decadal high. It pointed out that ‘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 further said global uncertainty remained elevated in the wake of lingering US trade policy uncertainties with key trading partners, renewed concerns on the fiscal health of advanced economies (AEs) and geopolitical risks.

The article said ‘Net foreign direct investment (FDI) inflows reached a 38-month high in July, aided by higher gross FDI and slower repatriation and outward FDI. Foreign exchange reserves remained adequate, underscoring external sector stability’. In this scenario, the growth outlook for H2 (second half of the year) is one of optimism. Healthy corporate balance sheets and the focus on structural reforms by the government are the bright spots of the economy. Also, a higher kharif sowing is expected to translate to a sustained growth momentum in the agriculture sector, while also keeping food prices under check. However, the RBI said the views expressed in the Bulletin article are of the authors and do not represent the views of the central bank.