International Monetary Fund raises India’s FY26 growth forecast to 7.3%

The International Monetary Fund (IMF) on Monday raised India’s growth projection to 7.3 per cent for fiscal 2025-26, up 0.7 percentage point from its October forecast, citing earnings in the third quarter and strong momentum heading into the fourth. It also highlighted that the global economy has largely absorbed the immediate impact of tariff-related shocks, but also predicted a big drop in India’s GDP growth next year, forecasting that it will decline to 6.4 per cent, days after the World Bank retained its own forecast at 6.5 per cent.

“In India, growth is revised upward by 0.7 percentage point to 7.3 per cent for 2025 (fiscal FY26), reflecting the better-than-expected outturn in the third quarter of the year and strong momentum in the fourth quarter,” it said in its World Economic Outlook (WEO) update.  Growth is, however, expected to ease to 6.4 per cent in 2026 and 2027, reflecting the softening of what it described as “cyclical and temporary factors”.

The revision comes after a period of stress last year, when a slowdown in corporate earnings growth emerged as a key factor behind economic and stock market volatility, triggering foreign fund outflows and investor caution. These pressures were compounded by persistent global trade tensions, elevated market valuations and concerns over India’s export performance following US tariff actions.

Nonetheless, the IMF’s latest forecast of 6.4 per cent GDP growth in 2026-27 is 20 basis points (bps) higher than its previous projection of 6.2 per cent that was made in October. Further, the 7.3 per cent forecast for growth this year is 70 bps higher than the 6.6 per centforecast that was made towards the end of the last calendar year. This upward revision, the IMF report said, was due to the “better-than-expected outturn in the third quarter of the year and strong momentum in the fourth quarter”.

Compared to other major economies, India’s growth trajectory remains notably stronger: the United States is projected to grow at 2.4 per cent in 2026, China at 4.5 per cent, and the Euro Area at a modest 1.3 per cent. Among emerging and developing Asian economies, India continues to lead, outpacing regional peers and contributing significantly to Asia’s projected 5.0 per cent growth in 2026.

According to India’s statistics ministry, GDP during April-September of 2025-26 registered a growth rate of 8 per cent, on the back of a robust 8.2 per cent growth in the July-September period.

The Indian economy is likely to expand by 7.4 per cent in the current fiscal, according to the First Advance Estimates released by the Ministry of Statistics and Programme Implementation (MoSPI). The growth during the 2024-25 fiscal year was 6.5 per cent.

On inflation, the IMF said it is expected to go back to near target levels after a marked decline in 2025, driven by subdued food prices. The Reserve Bank has a target to maintain consumer price index (CPI) based headline inflation at 4 per cent, with a margin of 2 per cent on the either side.

The IMF update further said that the global growth is projected to remain resilient at 3.3 per cent in 2026 and at 3.2 per cent in 2027. The forecast marks a small upward revision for 2026 and no change for 2027 compared with that in the October 2025 WEO.

In emerging markets and developing economies, growth is expected to continue to hover just above 4 per cent in 2026 and 2027.

Relative to the projection in October, growth in 2025 for China is revised upward by 0.2 percentage points to 5 per cent, the IMF said. Global headline inflation is expected to decline from an estimated 4.1 per cent in 2025 to 3.8 per cent in 2026 and further to 3.4 per cent in 2027, it said.