IMF Says GST Reforms Will Cushion India’s Economy From Global Challenges - BW Businessworld
India’s economy is expected to grow at 6.6 per cent in fiscal year 2025-26, the International Monetary Fund (IMF) said, noting that recent Goods and Services Tax (GST) reforms could help offset the impact of high US tariffs.
The IMF, after completing its annual assessment of India, highlighted the country’s resilient economic performance. India recorded a 6.5 per cent growth in 2024-25, followed by a 7.8 per cent expansion in the first quarter of 2025-26.
“Despite external headwinds, growth is expected to remain robust, supported by favourable domestic conditions,” the IMF said, adding that GST simplification and a reduction in the effective tax rate are expected to cushion the economy from the 50 per cent tariffs imposed by the US, including 25 per cent tariffs on purchases of Russian energy.
Looking ahead, the IMF said that India’s ambition to become an advanced economy depends on accelerating structural reforms to boost potential growth. It noted that risks remain, including deeper geoeconomic fragmentation, unpredictable weather affecting crops, and rising input costs. On the upside, new trade deals and faster domestic reforms could further enhance exports, investment, and employment.
The IMF also highlighted that headline inflation is expected to remain contained, aided by subdued food prices and the one-off effects of GST reform. It praised the resilience of India’s financial and corporate sectors, supported by strong capital buffers and low non-performing assets, and noted that fiscal consolidation and a contained current account deficit have strengthened economic stability.
IMF Executive Directors commended India’s macroeconomic policies and reforms, stressing the importance of continued fiscal discipline. They recommended targeted and time-bound tariff relief measures and careful monitoring of GST and personal income tax cuts.
The IMF also encouraged further labour market reforms, improved female workforce participation, continued public investment, a stronger business environment, and deeper trade integration to attract foreign investment. Investment in research and development, innovation, and the green transition were highlighted as key for sustainable growth.
On the financial sector, the IMF noted the sound capital and liquidity positions of banks, while urging caution on risks among non-bank financial institutions and rising interconnectedness in the system.