IMF raises India’s FY26 growth outlook to 6.6%

The International Monetary Fund (IMF) on Tuesday raised India’s economic growth forecast to 6.6% in FY26 from 6.4% estimated earlier; He argued that strong first-quarter growth more than offset the impact of higher US tariffs on Indian goods.

However, the IMF, in its latest World Economic Outlook (WEO), reduced India’s growth forecast for FY27 to 6.2% from the July estimate of 6.4%.

Even for FY26, India’s updated growth forecast is 0.2 percentage points lower than the IMF’s pre-tariff forecast in October 2024. The Washington-based global financial institution expects India to register the highest growth rate among advanced economies, emerging markets and developing countries in the current and next financial year.

India’s gross domestic product (GDP) grew 6.5% in FY25 and rose to a five-quarter high of 7.8% in April-June. Earlier this month, the World Bank raised India’s FY26 growth forecast to 6.5% from 6.3% in June, citing improving rural demand and gains from the goods and services tax (GST) cut. However, it lowered its FY27 GDP growth forecast to 6.3%, attributing the change to the lagging impact of US tariffs on the country.

Private sector showed agility

The US imposed a 50 percent tariff on Indian goods, one of the highest in the world. India’s goods exports to the US account for about 2% of the country’s GDP.
The Reserve Bank of India (RBI) has also increased its FY26 GDP growth forecast for India to 6.8% from the previous 6.5%.
The IMF predicts global growth will be 3.2% this calendar year and 3.1% next year; This represents an overall decrease of 0.2 points compared to the forecast a year ago. IMF chief economist Pierre-Olivier Gourinchas said in a blog post that the growth rating is in a moderate range as the United States negotiates trade agreements with several countries and provides numerous exemptions.
He noted that most countries have refrained from retaliating, instead keeping the trading system largely open. The private sector has also proven its agility; front-loaded imports and quickly rerouted supply chains. “As a result, the increase in tariffs and their impact have been smaller than expected so far,” Gourinchas said.

The report highlighted several downside risks to the global outlook, including trade policy uncertainty and protectionism, labor shortages, fiscal and financial vulnerabilities, and rising commodity prices due to climate shocks and regional conflicts. On the positive side, progress in trade negotiations, faster domestic structural reforms, and productivity gains resulting from the rapid adoption of artificial intelligence (AI) have been noted.