IMF raises India's GDP growth projection by 20 bps to 6.4% for FY26

IMF revises India's FY26 GDP growth to 6.4%, citing a favourable external environment; global growth also projected higher for 2025 and 2026

The International Monetary Fund (IMF) on Tuesday raised its growth outlook for India for financial year 2025-26 (FY26) to 6.4 per cent from 6.2 per cent projected in April, citing a more benign external environment and lower inflation.

 

The 20 basis points (bps) upgrade was part of an update to the multilateral lender’s World Economic Outlook (WEO) report, which also scaled up India’s Gross Domestic Product (GDP) forecast for FY27 by 10 bps to 6.4 per cent.

 

“In India, growth is projected to be 6.4 percent in [FY 2026 and FY 2027], with both numbers revised slightly upward, reflecting a more benign external environment than assumed in the April reference forecast,” the report said.

 

In response to a query on the rationale for the upward revision in India’s growth projection at, Deniz Igan, division chief, IMF, attributed the upgrade mainly to the suspension of higher tariff rates and lower inflation because of falling food prices.

 

“What has been the driver of this relatively stable growth is the fact that there has been a reform momentum supporting robust consumption growth and a push for public investment,” she said at a press briefing.

 

“…And to continue the recent good growth performance that we have seen, priorities [for India] would include fostering job creation and absorbing excess labor from the agricultural sectors by reskilling [them]. At the same time, continuing to invest in infrastructure and removing trade restrictions,” Igan suggested.

 

“In the medium term, India needs to continue to invest in education, take a step towards land reforms, expand the social safety net and reduce red tape to allow businesses to perform better,” she emphasised.

 

The IMF pegged global growth 20 bps higher than its April forecast at 3 per cent for 2025, and raised it by 10 bps to 3.1 per cent for 2026. “This reflects stronger-than-expected front-loading in anticipation of higher tariffs, lower average effective US tariff rates than announced in April, an improvement in financial conditions, including due to a weaker US dollar and fiscal expansion in some major jurisdictions,” the IMF noted.

 

Pierre-Olivier Gourinchas, chief economist, IMF says that the modest decline in trade tensions, however fragile, has contributed to the resilience of the global economy so far, along with a few other developments.    

 

“First, concerns about future tariffs led to a strong surge in exports to the US in the first quarter of the year. This front-loading helped support activity in Europe and Asia. Second, financial conditions improved, and monetary conditions eased as global inflation continues to recede. Third, the dollar has depreciated by roughly 8 percent since January,” he added.

 

In emerging markets and developing economies, the IMF projected growth to be 4.1 per cent in 2025 and 4 per cent in 2026. Relative to the forecast in April, growth in 2025 for China is revised upward by 80 bps to 4.8 per cent.

 

The risks to the outlook include a rebound in effective tariff rates which could lead to weaker growth and geopolitical tensions that could disrupt global supply chains and push commodity prices up.

 

“Elevated uncertainty could start weighing more heavily on activity, also as deadlines for additional tariffs expire without progress on substantial, permanent agreements. Larger fiscal deficits or increased risk aversion could raise long-term interest rates and tighten global financial conditions,” the IMF noted. On the upside, global growth could be lifted if trade negotiations lead to a predictable framework and to a decline in tariffs.

 

On inflation, the WEO update said global headline inflation is expected to fall to 4.2 per cent in 2025 and 3.6 percent in 2026, a path similar to the one projected in April.