GST Cuts, Low Inflation Boost Consumption; Economy Set for Steady Growth: Finance Ministry

A reduction in GST rates and a sustained decline in inflation have propelled spending, placing the domestic economy in a better position to respond to risks in a stable manner and maintain growth momentum in the current fiscal year. According to the monthly review for October released by the Finance Ministry on Thursday, tax reforms have resulted in an increasingly positive near-term consumption outlook.

Retail inflation fell to an all-time low of 0.25 percent last October in the current series. The ministry said the decline was due to the fall in GST rates, a favorable base effect, and a considerable fall in food inflation. The rationalization of GST rates has significantly boosted consumption, as reflected in the strengthening of high-frequency indicators. This includes higher e-way bill generation, record automobile sales during the festive season, strong UPI transaction values, and an increase in tractor sales. These developments point to a significant improvement in demand conditions in both urban and rural areas.

In the external environment, trade policy uncertainty persists. However, global pressures have eased compared to earlier. According to various independent economic estimates, real GDP growth for July-September is in the range of 7-7.5 percent. This indicates continued strength in economic activity. The economy is entering the second half on a stable footing, supported by well-controlled inflation and resilient domestic demand.

According to the report, global uncertainties are posing potential obstacles to capital investment and investor sentiment. These include changing trade policies, tensions between countries, and financial market volatility. Despite these challenges, the confluence of strong inflation expectations, sustained public capital spending, and robust rural and urban demand provides a stable foundation for the economy.