IMF projects Indian economy to grow at 6.6% in 2025-26, outpacing China

The International Monetary Fund (IMF) has predicted that India will continue to be one of the fastest-growing 'emerging market and developing economies' in 2025-26, growing at a rate of 6.6 per cent, according to the World Economic Outlook (WEO) report.

This upward revision is attributed to strong economic performance in the first quarter, which has more than offset the effects of increased US tariffs on Indian goods.

India is set to outpace China, which is expected to grow at 4.8 per cent. The IMF released its revised projections following the effects of US tariffs across various economies and the subsequent deals made between countries amid growing uncertainty.

However, the IMF has lowered its 2026 projection to 6.2 per cent, citing a potential fading of first-quarter momentum.

With the effects of tariffs lower than expected, the IMF projects global growth at 3.2 per cent in 2025, while slowing to 3.1 per cent in the following year. These projections, however, are still lower than the pre-policy-shift forecasts.

Inflation is projected to continue to decline globally, though with variation across countries: above target in the United States--with risks tilted to the upside--and subdued elsewhere, the IMF's report mentioned.

Advanced economies are expected to grow at an average rate of 1.6 per cent, whereas emerging economies are set to grow at 4.2 per cent, with the 2026 projection predicting a 0.2 per cent slowdown.

IMF also predicts that Spain is going to be the fastest-growing 'advanced economy', growing at a rate of 2.9 per cent. The United States is also set to grow at 1.9 per cent, down from 2.4 per cent in 2024.

Meanwhile, the forecast predicts Brazil's growth at 2.4 per cent, Canada at 1.2 per cent, Japan at 1.1 per cent while ASEAN-5 countries

The October WEO IMF predictions are up relative to their April forecasts, but continue to be on a downward revision relative to the pre-tariff policies.

Despite India's rapid growth, the IMF predicts global growth will slow from 3.3 per cent in 2024 to 3.2 per cent in 2026.

The IMF also predicts that 'prolonged uncertainty, more protectionism, and labour supply shocks' could reduce growth. While "fiscal vulnerabilities, potential financial market corrections, and erosion of institutions could threaten stability."

The IMF urged policymakers to restore confidence through credible, transparent, and sustainable policies, with trade diplomacy to be paired with macroeconomic adjustment.

"Fiscal buffers should be rebuilt. Central bank independence should be preserved. Efforts on structural reforms should be redoubled", the IMF said.

Earlier in October, the IMF announced its revisions to forecasts, projecting an upward growth to 6.6 per cent. That revision was largely due to India's strong growth momentum in the first quarter of FY26, when the economy grew at 7.8 per cent.

The upward revision is mainly due to the carryover effect from a strong first quarter, rather than any offsetting effect from recent US tariffs.

In 2024-25, the Indian economy grew by 6.5 per cent in real terms. The government has maintained the GDP forecast at 6.3-6.8 per cent for 2025-26, even amid US tariff uncertainty, affirming confidence in the country's robust domestic consumption.