The International Monetary Fund has commended India for demonstrating remarkable economic strength and resilience in a challenging global landscape. During its annual bilateral consultations, the IMF executive board highlighted the country's robust post-pandemic recovery while emphasizing the need for continued fiscal discipline and structural reforms.
Strong Economic Performance and Key Indicators
India's economic momentum remains impressive, with growth reaching 6.5% in FY25 and accelerating to 7.8% in the first quarter (April-June) of FY26. The IMF noted significant progress in controlling retail inflation, which has cooled substantially due to moderated food prices. These discussions occurred during the IMF team's visits to Bengaluru, Chennai, Mumbai, and New Delhi from September 4-18, with the final report completed on November 6 and presented to the executive board on November 21.
The assessment also recognized the durability of India's financial and corporate sectors, supported by multi-year-low non-performing assets and healthy capital buffers. Fiscal consolidation has advanced significantly, while the current account deficit remains contained, bolstered by resilient services exports.
Exchange Rate Reclassification and Monetary Policy
In a significant development, the IMF has reclassified India's de facto exchange rate regime as a "crawl-like arrangement", changing from its previous classification as a "stabilised arrangement" two years ago. The organization clarified that this statistical reclassification follows a backward-looking methodology and doesn't reflect future policy intentions.
Regarding monetary policy, IMF directors supported the Reserve Bank of India's data-driven approach, noting that persistently benign inflation could create room for further easing. They emphasized the need for stronger monetary transmission and greater currency flexibility to help absorb external shocks effectively.
Future Outlook and Reform Imperatives
The IMF projected India's real GDP growth at 6.6% in FY26, moderating to 6.2% in FY27 under a baseline scenario assuming prolonged US tariffs of 50%. The recent overhaul of the goods and services tax, featuring a lower effective rate, is expected to cushion some tariff impacts while keeping inflation well anchored.
While endorsing the government's fiscal consolidation efforts, the IMF cautioned that meeting this year's deficit goal of 4.4% of GDP will require strict spending discipline. Directors recommended that tariff relief measures should be targeted, transparent, and time-bound, with the pace of fiscal consolidation in FY2026/27 conditional on tariff impacts.
For medium-term stability, the IMF stressed that fiscal buffers should be replenished by focusing on domestic revenue mobilization and improving expenditure efficiency, including through a more targeted social safety net. The financial system remains sound, but the organization urged vigilance over risks in non-bank lenders and recommended continued progress on financial reforms with stronger oversight.
