New Delhi, Oct 27: Supported by the recent GST reforms, Indian economy continues to be on strong footing and is expected to record strong growth in the current financial year 2025-26, as per the latest edition of Monthly Economic Review (MER) released by Finance Ministry on Monday.

The report noted that both urban and rural demand are seen gaining further momentum after the GST rate cut across sectors and upward trends are visible in the July-September quarter (Q2) of the current fiscal.

“Demand conditions across rural and urban India strengthened with the implementation of the GST reforms and the festive season, coinciding with industry reports signalling robust growth in sales, particularly in sectors such as automobiles,” the report prepared by Department of Economic Affairs under Finance Ministry said.

With growth outlook being positive, the International Monetary Fund (IMF) recently raised its growth forecast for India for FY26 to 6.6% from 6.4% earlier.

The Reserve Bank of India (RBI) has pegged FY26 GDP growth at 6.8%.

One of the key economic indicators showing the health of economy, retail inflation has declined to record low. The headline retail inflation fell to 1.54% in September 2025 primarily on the back of lower food prices.

“The prices of non-food and non-fuel items remained stable, with core inflation coming in at 4.6 per cent in September 2025. Barring shocks stemming from adverse weather events and supply chain disruptions, price stability is expected to prevail,” said the Finance Ministry report.

Notably, India’s trade performance has remained fairly good despite imposition of punitive tariff by the US on a basket of export items.

Even as trade deal negotiations with the US continue, merchandise trade data for September 2025 presented early evidence of diversification of export destinations.

“Looking ahead, 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 report said.

The report underlined the strength of Indian economy but at the same time also sounded a note of caution.

“Nevertheless, global uncertainties warrant caution and will continue to affect external demand, presenting downside risks to the growth outlook. 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.”

Beating market estimates, Indian economy logged 7.8% year-on-year growth in the April-June quarter (Q1) of the current fiscal and retained the tag of the fastest-growing major economy in the world.