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GST Reforms, Demand Revival To Push FY26 GDP Growth To 7.4%, Says NIPFP
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The NIPFP’s outlook positions India as one of the fastest-growing major economies in FY26, even amid global uncertainties.
The NIPFP projected retail inflation at 1.6 per cent in the current financial year, citing easing food inflation.
The Indian economy is likely to expand by 7.4 per cent in FY26, driven by the positive impact of goods and services tax (GST) rate rationalisation, a revival in domestic demand, and strong performance in the US economy, according to the National Institute of Public Finance and Policy (NIPFP) in its latest mid-year economic review released on Tuesday.
The projection marks a significant upgrade from NIPFP’s April estimate of 6.6 per cent growth, and also surpasses the Reserve Bank of India’s (RBI) latest forecast of 6.8 per cent.
“Largely on the back of robust public sector investment, revival in domestic consumption demand in both rural and urban areas, goods and services tax (GST) rate rationalisation, and the external sector, especially the US performing to its potential, the economy is expected to clock this robust growth,” the review stated.
Alternate Growth Scenarios
The autonomous research institution, which functions under the finance ministry, presented two alternative scenarios based on the performance of the US economy.
If the US output stays 1 per cent above potential, India’s GDP could expand by 8.8 per cent in FY26. Conversely, if the US output remains 1 per cent below potential, India’s growth may slow to 6 per cent.
Inflation Outlook
The NIPFP projected retail inflation at 1.6 per cent in the current financial year, citing easing food inflation. However, it warned of rising core inflation, driven by higher prices of gold and silver, and persistently elevated edible oil inflation.
“Our inflation projection is quite lower than the 2.6 per cent estimated by the RBI. The inflation is expected to remain 1.1 per cent in Q3 and 0.8 per cent in Q4,” the review noted. It added that while buoyant domestic demand from GST rate restructuring poses an upside risk, moderating energy prices and Trump tariff-induced demand moderation could act as downside risks.
Trade Concerns and Diversification
On the external front, the NIPFP highlighted that most bilateral trade deals disproportionately benefit the United States, urging India to diversify its services exports to mitigate potential risks from widening US tariffs.
“Unlike some countries, India holds very little leverage in merchandise exports, which are concentrated in a few sectors. In the case of services, more than half of India’s exports are to the US, and they face real risk if the net of Trump tariffs widens. Hence, diversification is the key,” the review cautioned.
With strong fiscal support, GST-driven efficiency gains, and resilient domestic demand, the NIPFP’s outlook positions India as one of the fastest-growing major economies in FY26, even amid global uncertainties.
Haris is Deputy News Editor (Business) at news18.com. He writes on various issues related to personal finance, markets, economy and companies. Having over a decade of experience in financial journalism, Haris h…Read More
Haris is Deputy News Editor (Business) at news18.com. He writes on various issues related to personal finance, markets, economy and companies. Having over a decade of experience in financial journalism, Haris h… Read More
November 12, 2025, 08:26 IST
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