IMF trims India's FY27 growth forecast to 6.4% from 6.5% in April

The IMF has cut India's FY27 growth forecast to 6.4 per cent, saying higher energy prices outweigh resilient economic activity, while raising its FY28 projection

The International Monetary Fund (IMF) on Wednesday pared its growth forecast for India by 10 basis points (bps) to 6.4 per cent for FY27 (2026-27) from its April forecast, saying higher energy prices may offset the resilience in the country’s economic activity. 

“High-frequency indicators through April are showing quite a bit of resilience in overall economic activity, but these positive effects are more than offset for 2026 by higher energy prices in our baseline July update, as well as greater pass-through of those prices to the pumps in India,” Deniz Igan, deputy chief of the Macro-Financial Division in the IMF’s Research Department, told reporters in Washington, DC. 

 

“In 2027, we are expecting strengthening (of growth momentum), with the energy shock dissipating. Medium-term growth is estimated at around 6.5 per cent,” Igan said. 

For FY28, the multilateral organisation upgraded its growth forecast by 20 bps to 6.7 per cent. “India remains among the fastest-growing major economies, with growth projected at 6.4 per cent, supported by strong momentum in private consumption and services activity,” the IMF said in its World Economic Outlook update. 

The report said revisions to growth forecasts for emerging market and developing economies were mixed, reflecting differences in commodity dependence, geographic exposure, remittance and tourism receipts, sensitivity to financial conditions, and position in the global technology value chain. 

The Fund raised China’s 2026 growth forecast by 20 bps to 4.6 per cent while saying the economy is expected to slow from 5 per cent in 2025.

  It said higher global oil prices, prolonged uncertainty, and structural headwinds weigh on economic activity in China.

 

Global growth is projected at 3 per cent in 2026, down from its April estimate of 3.1 per cent. “The modest slowdown reflects the effects of the war in the Middle East (West Asia), partly offset by accelerated demand-driven momentum in the global technology cycle, driven by advances in artificial intelligence (AI) and its adoption,” the IMF said.

 

The IMF said the impact would vary widely depending on countries' exposure to the conflict and their position in the global technology value chain.

 

“Energy exporters outside the conflict zone benefit from favourable terms of trade, whereas economies plugged into the technology-led upturn experience stronger activity even if they are energy importers. In contrast, activity weakens for energy importers with limited participation in the technology value chain, a group that includes many low-income countries,” it said.

 

The Reserve Bank of India (RBI) last month revised its FY27 growth projection to 6.6 per cent from 6.9 per cent, citing risks stemming from the West Asia conflict, elevated crude oil prices, and weather-related uncertainties.

 

The IMF expects energy prices to remain above pre-war assumptions. It projected the average petroleum spot price index at $89 per barrel, 9 per cent higher than assumed in the April 2026 WEO reference forecast. Natural gas prices, based on Dutch Title Transfer Facility futures, are projected to be 15.5 per cent higher than the April reference forecast.

 

“This corresponds to an increase of 32 per cent in crude oil prices and 22 per cent in natural gas prices in 2026, relative to 2025. Fertiliser prices are projected to rise by 26 per cent. Reflecting higher energy and fertiliser costs and more expensive transport, food prices are expected to increase by 8 per cent,” it added.

 

In emerging market and developing economies, fiscal policy is expected to tighten gradually, it said. “In crude-oil-importing Asian emerging markets, deterioration in the terms of trade has worsened the inflation outlook and put pressure on exchange rates, prompting a sharper upward repricing of expected policy paths,” it said.

 

“Rebuilding fiscal space remains essential given elevated debt, higher borrowing costs, and heightened external uncertainty. Credible medium-term consolidation should rest on durable revenue measures, stronger tax administration, greater spending efficiency, and reallocation towards growth-enhancing priorities such as infrastructure, skills, and well-targeted social protection. In high-debt economies, adjustment may also require deeper spending rationalisation and active management of interest rate and refinancing risks,” the IMF said.

 

The IMF said the risks are more balanced than in April but remain tilted to the downside. “Re-escalation of geopolitical tensions (in West Asia) would hurt growth and compound inflationary pressures. That said, if the reopening of the Strait of Hormuz goes more smoothly than assumed and commodity prices turn out to be lower than in the baseline, growth could be higher and inflation lower,” it said.

  The Fund said activity could also surprise on the upside in the short term if AI-related capital spending remains exceptionally strong or financial conditions ease further, continuing to offset the headwinds from geopolitical tensions, trade fragmentation and weak policy buffers. “But AI hype and exuberant financial markets could, at the same time, sow the seeds of macro-financial instability,” it added.