India’s economy to clock robust 6.6 pc growth in FY26 despite external headwinds: IMF

India is projected to maintain a strong economic expansion in FY26 despite global challenges, driven by favorable domestic fundamentals, according to a Wednesday IMF report.

With baseline assumptions of sustained 50% U.S. tariffs, India’s real GDP growth is forecast at 6.6% for FY2025-26, moderating slightly to 6.2% in FY2026-27. The economy demonstrated resilience with 6.5% growth in FY2024-25, accelerating to 7.8% in Q1 FY2025-26. Declining headline inflation, supported by stable food prices, robust financial sector health with minimal non-performing assets, continued fiscal consolidation, and manageable current account deficits highlight economic stability.

The goods and services tax (GST) reforms and related rate reductions are expected to mitigate tariff impacts while keeping inflation subdued. Continued implementation of structural reforms remains vital to achieving advanced economy status through higher sustainable growth.

Key risks remain for India’s economic trajectory. Potential trade pacts and faster structural reforms could spur exports, investment, and jobs. Conversely, intensified geoeconomic fragmentation might tighten financial conditions, raise input costs, and constrain trade and growth. Climate volatility could reduce agricultural output, weaken rural demand, and reignite inflation pressures.

IMF leadership praised India’s macroeconomic management and reform-driven resilience, emphasizing accelerated structural reforms as essential for sustaining growth momentum toward advanced economy status. Directors endorsed India’s fiscal consolidation plans while highlighting the need for disciplined expenditure to meet deficit targets. They welcomed recent GST simplifications but urged monitoring of fiscal impacts from tax reductions.

Monetary policy received backing for its data-driven approach, with scope for easing if inflation remains controlled amid sustained tariffs. Recommendations included improving monetary transmission mechanisms and allowing greater exchange rate flexibility to absorb external shocks, with interventions limited to addressing market disorder under the Integrated Policy Framework.

Source: IANS