IMF urges targeted buffers, reforms for India amid West Asia shock

IMF advises India to deploy fiscal buffers through targeted support as prolonged West Asia crisis could intensify energy shocks and disrupt growth across Asia

India must deploy its fiscal buffers efficiently through targeted support as a prolonged West Asia energy crisis risks intensifying pressures, Krishna Srinivasan, director of Asia and Pacific department, International Monetary Fund (IMF), advised on Thursday. 

 

At the Asia-Pacific Economic Outlook press briefing, Srinivasan highlighted robust remittances from the Middle East sustaining India, alongside slightly upgraded growth forecasts, but warned against wasteful spending amid regional vulnerabilities.

 

IMF on Tuesday raised its forecast for India’s GDP growth in financial year 2026-27 (FY27) by 10 basis points to 6.5 per cent, from 6.4 per cent projected in its January outlook, expecting the adverse impact of the conflict in West Asia to be outweighed by the reduction in additional US tariffs on Indian goods from 50 per cent to 10 per cent.

 

“We have been emphasising the principles in terms of providing targeted support, targeted to people who need it the most, targeted to firms which are viable and so on and so forth. So, expand your buffers in such a way that you give it to those who really need it,” Srinivasan added. 

 

While strong late-2025 momentum, U.S. tariff reductions, and tax reforms offer a fillip to economic activity, cautions abound. A prolonged energy shock could be disruptive for all countries including India, he said. “If this shock intensifies both in terms of duration and expands beyond just oil and gas, that could be disruptive for India.”

 

On a regional level, the IMF believes Asia is significantly exposed to the energy shock. The use of oil and gas amounts to about 4 per cent of GDP — double Europe's share — for the region as a whole, although there is variation across countries. 

 

He noted that limited domestic production means that this high energy intensity translates into import dependence. The region is also exposed through non-energy inputs, with disruptions of fertilisers and petrochemical inputs such as helium and sulfur creating broader supply chain pressures if the conflict persists.

 

Under the reference scenario, which assumes a conflict of a limited scope and duration, growth forecasts for Asia are broadly unchanged relative to January projections. Regional growth is projected to moderate from 5 per cent in 2025 to 4.4 per cent in 2026 and 4.2 per cent in 2027. Emerging Asia remains the main growth engine, but momentum is expected to moderate with broad-based decelerations in China, India and ASEAN, as higher energy prices weigh on consumption and external positions.

 

Srinivas pointed out that integration within Asia is limited because many countries in Asia use non-tariff barriers, adding that the crisis could serve as a wake-up call for greater regional integration. “This could be a way for countries in Asia to trade more with each other, reduce non-tariff barriers and increase trade integration, to diversify trading partners,” he added. 

 

For Asia, the IMF recommended that monetary policy stay agile. Fiscal measures demand careful balance through targeted, temporary support for vulnerable households and firms. Broad fuel subsidies, tax cuts, and price caps should be avoided, as they are costly, distortionary, and difficult to reverse, it said.