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India’s growth pulse: First quarter FY26 GDP, GST 2.0 and trade risks - EY

EY

In the latest episode of EY India podcast, D.K. Srivastava, a distinguished economist and Chief Policy Advisor at EY India, discusses reasons behind India's robust 7.8% real GDP growth in Q1 FY26. He provides a deep analysis into the structural and policy shifts underpinning this momentum, particularly the government’s push through capital expenditure and the pressures on fiscal balances amid evolving revenue trends.

D.K. Srivastava explores the far-reaching implications of GST 2.0. The conversation extends to analyzing India’s trade performance amid global supply chain disruptions and tariff-related uncertainties. He emphasizes on the need for strategic diversification of trade partners and highlights India’s vision to achieve US$500 billion in bilateral trade with the US by 2030.

Key takeaways

  • Q1 FY26 GDP in India grew 7.8%, surpassing RBI’s 6.5% forecast.
  • Manufacturing and key service sectors — trade, transport, finance, and public administration — were the main drivers of this performance.
  • Growth in capital formation and government final consumption expenditure supported economic growth from the demand side.
  • GST 2.0 simplifies tax structure by dropping the 12% and 28% slabs, leaving 5%, 18% and 40% as the main rates.
  • The initial direct impact of GST rate reductions on revenue may be offset by increased demand as lower prices stimulate consumption.
  • Sectors such as textiles, consumer electronics, automobiles, health, and most food items are among the key beneficiaries of lower GST rates.
  • State governments may increase borrowing or reduce expenditure to manage the fiscal burden from GST reforms.
  • India must diversify its export destinations and import sources in the face of tariffs, supply chain disruptions and other global uncertainties.
Although the direct impact of (GST) rate reduction is negative, it may be counterbalanced by an increase in demand because prices would go down.

For your convenience, full text transcript of this podcast is available below.

Presenters

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