India’s Economy to Maintain Strong 6.6% Growth in FY2025-26: IMF
The International Monetary Fund projects India’s economy will grow at a robust 6.6% in FY2025-26, demonstrating resilience despite global economic challenges and external pressures.
Key Takeaways
- GDP growth projected at 6.6% for FY2025-26, moderating to 6.2% in FY2026-27
- Strong first-quarter performance with 7.8% expansion in FY2025/26
- Inflation declines significantly due to subdued food prices
- GST reforms expected to cushion impact of external tariffs
Current Economic Performance
India’s economy continues to show strong momentum, building on 6.5% growth in FY2024-25. The financial and corporate sectors remain resilient with adequate capital buffers and multi-year low non-performing assets. Fiscal consolidation has advanced while the current account deficit remains contained, supported by resilient service exports.
Structural Reforms Driving Growth
The IMF highlighted that GST reforms and resulting rate reductions are expected to help cushion adverse tariff impacts. Headline inflation is projected to remain well contained, reflecting the one-off effect of GST reform and continued benign food prices. Comprehensive structural reforms are seen as crucial for supporting India’s ambition to become an advanced economy.
Risk Assessment
The report identifies significant near-term risks to the economic outlook. Positive factors include potential trade agreements and faster structural reform implementation, which could boost exports, private investment, and employment. However, geoeconomic fragmentation could lead to tighter financial conditions, higher input costs, and reduced trade and FDI. Unpredictable weather shocks also pose inflation risks.
Policy Recommendations
IMF Executive Directors commended India’s strong economic performance and resilience, attributing success to sound macroeconomic policies. They emphasized the need for continued sound policies and accelerated structural reforms to maintain stability.
The IMF supports the government’s fiscal consolidation plans while noting that achieving deficit targets will require strong spending discipline. Careful monitoring of GST and personal income tax rate reductions is recommended.
Regarding monetary policy, the IMF backs the RBI’s data-dependent approach and suggests scope for further monetary easing if inflation remains benign. Enhanced monetary transmission and greater exchange rate flexibility are advised to help the economy absorb external shocks.
