The Finance Ministry, in its September 2025 Economic Review, has cautioned that persistent global uncertainties could continue to dampen external demand, posing downside risks to India's growth outlook, even as domestic demand remains resilient on the back of recent tax reforms and policy measures.
The report observed that while India's structural reforms and fiscal discipline have strengthened macroeconomic fundamentals, the external environment continues to be fraught with challenges.
"Uncertainties warrant caution and will continue to affect external demand, presenting downside risks to the growth outlook," the Ministry stated.
Domestic Demand Strengthened by GST Cuts and Reforms
The Finance Ministry expressed optimism about India's domestic economic outlook, citing that the recent reduction in GST rates is expected to spur consumption and investment by lowering the overall tax burden on consumers and businesses.
Sectors such as manufacturing, services and construction have continued to demonstrate robust performance, while a stable labour market and expanding employment opportunities are likely to further support demand.
The report also highlighted that ongoing structural reforms, including the proposed GST 2.0 framework, are expected to enhance efficiency, ease compliance, and strengthen revenue buoyancy, helping mitigate spillover effects from global weakness.
Global Growth Faces "Fog of Uncertainty"
On the external front, the Ministry's review noted that the global economy continues to operate under "a fog of uncertainty," with the short-term resilience seen earlier in 2025 now beginning to fade.
According to the report, temporary factors such as a lower effective US tariff rate, frontloaded trade activity and a weaker dollar had initially supported global growth. However, these drivers are now waning, exposing underlying structural weaknesses.
Citing IMF assessments, the Ministry said that US households and firms had advanced consumption and investment in anticipation of higher tariffs, while delays in tariff implementation temporarily deflected inflationary pressures. These developments helped stabilize global growth forecasts for 2025 at levels similar to those projected in late 2024.
However, the Ministry warned that "recent resilience masks structural weaknesses which are coming to the fore." Core inflation and unemployment have edged up in the United States, China's export growth has slowed amid its prolonged property sector troubles and the Eurozone continues to show muted growth, with 2026 projections remaining stagnant.
Policy Continuity and Resilience Key to India's Outlook
Despite global turbulence, the Finance Ministry reaffirmed confidence in India's medium-term growth prospects, supported by sustained policy momentum, fiscal prudence, and a focus on infrastructure-led growth. The government's commitment to structural reforms-spanning tax simplification, investment facilitation and digital governance, is expected to provide the necessary cushion against external shocks.
Economists note that as global growth headwinds intensify, India's ability to maintain domestic demand resilience will be crucial in sustaining its position as one of the world's fastest-growing major economies.
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