The International Monetary Fund has sharply raised its projection for India’s economic growth in fiscal year 2026 to 7.3 per cent, an increase of 0.7 percentage points from its prior estimate.

This upgrade reflects stronger-than-anticipated performance in the latter part of the current fiscal year, particularly in the third and fourth quarters.

It aligns with a recent revision by India’s National Statistics Office, which lifted its estimate for the year ending 31 March to 7.4 per cent, surpassing the government’s initial range of 6.3 to 6.8 per cent.

India continues to stand out as one of the world’s brightest economic performers, often described by IMF officials as a ‘key growth engine’ for the global economy. Julie Kozack, Director of the IMF’s Communications Department, highlighted this role last week, contrasting it with the Fund’s earlier 6.6 per cent forecast from its Article IV staff report. The revision underscores the resilience of India’s domestic demand and investment-driven expansion, even as global headwinds persist.

However, the IMF cautions that this robust pace is unlikely to endure indefinitely. Growth is projected to moderate to 6.4 per cent in the subsequent two fiscal years as cyclical tailwinds dissipate.

For calendar years 2026 and 2027, the forecasts stand at 6.3 per cent and 6.5 per cent respectively, signalling a gradual shift towards more sustainable levels. This trajectory remains the envy of most major economies, positioning India as a counterbalance to slowdowns elsewhere.

On the global stage, the IMF anticipates steady but subdued expansion at 3.3 per cent in 2026 and 3.2 per cent in 2027, matching the estimated 3.3 per cent for 2025. High-tech sectors will provide some offset to weaknesses in manufacturing and construction, though their momentum is expected to ease. 

Risks are predominantly downside, with US tariffs and geopolitical uncertainties posing threats to trade and investment flows, albeit with diminishing impact by 2027.

India-specific factors also contribute to this outlook. Inflation, which plummeted in 2025 due to benign food prices, is forecast to stabilise near the Reserve Bank of India’s target band of 2 to 6 per cent. This provides monetary policymakers with room to support growth without overheating pressures. Low oil prices, driven by weak global demand and ample supply, further bolster India’s external balances as a major energy importer.

The upgrade validates India’s policy framework, including fiscal discipline and structural reforms that have enhanced productivity and private consumption. Yet, sustaining high growth will demand continued investment in infrastructure, digitalisation, and manufacturing under initiatives like ‘Make in India’. Labour market reforms and skill development remain critical to absorbing a burgeoning workforce.

External risks, including volatile commodity prices and protectionist policies, could test this resilience. A stronger US dollar might pressure emerging market currencies, though India’s robust foreign reserves offer a buffer. Geopolitical tensions in key oil-producing regions add another layer of uncertainty, potentially reversing the favourable oil price trajectory.

Looking ahead, India’s trajectory positions it favourably for multilateral engagements and foreign direct investment. The IMF’s endorsement could catalyse inflows into sectors like renewable energy, semiconductors, and defence manufacturing—areas of strategic priority. As global growth engines shift towards Asia, India’s momentum reinforces its centrality in reshaping economic multipolarity.

Reuters