IMF lifts India growth outlook for FY26 but flags moderation ahead

New Delhi – The International Monetary Fund has raised its forecast for India’s economic growth in fiscal year 2026 to 7.3 percent, underlining the country’s strong momentum and resilience amid global uncertainty.

The upward revision reflects better-than-expected economic performance in recent quarters and reinforces India’s position as one of the fastest-growing major economies.

According to the IMF, the improved outlook is driven by robust domestic demand, sustained public investment and solid performance across key sectors of the economy.

Strong momentum in the latter part of the current fiscal year has played a major role in boosting confidence about near-term prospects.

The revised forecast aligns closely with recent estimates by India’s National Statistics Office, which earlier raised its growth projection for the year ending March 31.

This convergence of views among global and domestic institutions signals confidence in India’s macroeconomic fundamentals and policy framework.

However, while the near-term outlook has improved, the IMF cautioned that growth is expected to moderate in the following two fiscal years.

The Fund projects that expansion could slow to around the mid-6 percent range as cyclical factors that supported recent growth gradually fade.

For calendar years 2026 and 2027, the IMF expects India’s economy to grow at a slightly slower but still healthy pace.

This moderation is seen as a natural adjustment rather than a sharp downturn, reflecting the normalization of post-pandemic demand and the waning impact of stimulus-driven activity.

India continues to stand out in the global economic landscape. IMF officials have described the country as a key engine of global growth, especially at a time when several advanced economies are grappling with slower expansion and structural challenges.

At the global level, the IMF expects overall economic growth to remain broadly stable over the next two years.

While high-technology sectors are likely to lose some momentum, their contribution is expected to partly offset weakness in other areas of the global economy.

Nevertheless, risks remain tilted to the downside. The IMF warned that ongoing trade tensions, particularly related to U.S. tariff policies, and broader geopolitical uncertainty could weigh on global activity.

These factors may have spillover effects on emerging markets, including India, though their impact is expected to diminish over time.

Inflation trends in India have also improved. The IMF noted that price pressures are expected to return closer to target levels after a sharp decline in 2025, largely driven by subdued food prices.

This development provides additional room for policymakers to focus on sustaining growth while maintaining macroeconomic stability.

Low and declining global oil prices are another supportive factor for India’s outlook. With demand growth remaining tepid and supply strong, softer energy prices could help ease input costs for businesses and reduce pressure on the country’s import bill.

India’s growth story continues to be supported by structural factors such as a large domestic market, ongoing infrastructure investment and reforms aimed at improving the business environment.

Public spending on roads, railways and digital infrastructure has played a significant role in crowding in private investment.

At the same time, challenges remain. Slower global growth, potential volatility in financial markets and external shocks could test India’s resilience.

The IMF’s projection of moderation underscores the importance of maintaining reform momentum and ensuring that growth remains broad-based and inclusive.

Looking ahead, policymakers are likely to focus on balancing growth support with fiscal prudence, while also addressing employment generation and productivity gains.

The IMF’s latest assessment suggests that while India’s economy may not sustain the same pace indefinitely, it is well-positioned to remain a major contributor to global growth.

Overall, the IMF’s revised forecast offers a vote of confidence in India’s near-term economic trajectory, even as it highlights the need to prepare for a gradual slowdown. How effectively India navigates this transition will shape its economic performance in the years to come.