India’s economy is expected to maintain strong growth momentum in the financial year 2025–26 despite heightened global uncertainty and the prolonged imposition of 50 per cent US tariffs, the International Monetary Fund (IMF) said in its latest assessment released in Washington on Wednesday. 

Under this baseline scenario, India’s real GDP is projected to grow at 6.6 per cent in FY2025–26 before easing slightly to 6.2 per cent in FY2026–27, underscoring the economy’s resilience against external shocks.

The IMF noted that India’s economy has continued to perform robustly, following an estimated 6.5 per cent expansion in FY2024–25. Growth accelerated to 7.8 per cent in the first quarter of FY2025–26, driven by strong domestic demand, infrastructure investment, and improved industrial output.

The report highlighted that headline inflation has fallen markedly in recent months, aided by subdued food prices and effective supply-side management.

Financial and corporate sectors remain sturdy, underpinned by healthy capital buffers, improved asset quality, and historically low levels of non-performing assets. Fiscal consolidation efforts have also advanced, reflecting the government’s commitment to sustainable public finances.

Meanwhile, the current account deficit remains contained, supported by buoyant services exports and resilient remittances.

According to the IMF, India’s ongoing reforms—especially those related to the goods and services tax (GST)—are expected to mitigate some of the adverse effects of trade protectionism. The rationalisation of GST rates and simplification of compliance processes could help sustain consumption and investment activity, while enhancing tax buoyancy over the medium term.

Inflation is projected to remain well within target, as the one-off adjustments from GST reform moderate and food supply conditions remain stable. The IMF observed that these domestic stabilisers, supplemented by prudent macroeconomic management, have enabled India to retain its position as one of the fastest-growing major economies globally.

The Fund reiterated that India’s aspiration to transition into an advanced economy will depend on the continued pursuit of comprehensive structural reforms. Priorities include improving labour market flexibility, enhancing productivity in manufacturing, deepening financial markets, and fostering higher female participation in the workforce.

Efforts to boost digital infrastructure, accelerate the formalisation of the economy, and strengthen the start-up ecosystem are expected to support innovation-led growth. The IMF underlined that timely implementation of such measures could lift India’s medium-term growth potential significantly.

Despite the optimistic baseline scenario, the IMF flagged several downside risks to the outlook. A deepening of global trade fragmentation or escalation of geopolitical tensions could tighten financial conditions and dampen foreign direct investment inflows. Persistent or higher tariffs may elevate input costs and weigh on export competitiveness, particularly for labour-intensive sectors.

Weather-related shocks were cited as another vulnerability, given agriculture’s dependence on monsoon patterns. Unfavourable climatic conditions could disrupt crop yields, constrain rural consumption, and potentially reignite inflationary pressures.

In contrast, faster progress on trade agreements, supply chain diversification, and domestic reforms could provide material upside to growth, boosting exports, private investment, and employment creation.

The IMF’s Executive Directors commended India’s robust economic performance and the resilience demonstrated in navigating multiple global disruptions. They welcomed the authorities’ focus on prudent fiscal management, inclusive growth, and financial stability.

The institution supported the government’s plan for continued fiscal consolidation but cautioned that achieving the fiscal deficit target would require strict spending control and efficient resource allocation. 

While welcoming the simplification of GST and adjustments to personal income tax rates, it urged careful monitoring of the fiscal consequences of these changes.

The IMF endorsed the Reserve Bank of India’s (RBI) data-driven approach to monetary policy, noting that prevailing conditions of stable inflation might allow room for cautious monetary easing if tariff levels persist.

It also encouraged efforts to strengthen monetary transmission and foster greater exchange rate flexibility, consistent with the Integrated Policy Framework, to cushion the economy against external shocks.

Overall, the IMF’s assessment highlights that India’s macroeconomic fundamentals remain strong despite the challenging global environment. Resilient domestic demand, sound fiscal and monetary policies, and ongoing structural reforms position the country favourably for sustained growth in the coming years.

Based On ANI Report