New Delhi: The International Monetary Fund delivered an optimistic assessment of India's economic trajectory on Monday. The IMF significantly increased its growth forecast for India in the current financial year, FY26, to a robust 7.3%. This marks a substantial upward revision from its October estimate of 6.6%.
Strong Growth with Future Moderation
The agency cited better-than-expected economic performance as the key reason for this positive adjustment. Looking ahead, the IMF's World Economic Outlook 2026 projects a moderation in India's growth rate. It forecasts expansion at 6.4% for both FY27 and FY28 as certain cyclical and temporary supportive factors begin to fade.
On the inflation front, the IMF provided reassuring news for India. It expects inflation to return to levels near the official target. This follows a significant decline anticipated in 2025, driven largely by subdued food prices.
Global Outlook and Underlying Forces
The IMF also revised its global growth estimates upward. It now projects the world economy to grow by 3.3% in both 2025 and 2026, up from previous forecasts of 3.2% and 3.1% respectively. Growth is expected to be 3.2% in 2027.
Global headline inflation is predicted to decline steadily. The forecast sees it falling from an estimated 4.1% in 2025 to 3.8% in 2026 and further to 3.4% in 2027. Lower energy costs and softer demand are seen as primary drivers for this disinflationary trend. These inflation projections remain broadly unchanged from October's outlook.
The IMF explained that the current steady global growth stems from a delicate balance between opposing forces. On one side, volatile trade policies create significant headwinds. On the other, a powerful surge in artificial intelligence and technology investments, particularly across North America and Asia, provides strong tailwinds.
Supportive fiscal and monetary policies worldwide, combined with the private sector's adaptability in navigating these complex shifts, have further bolstered economic resilience.
Expert Analysis on India's Performance
Economic experts praised India's handling of external challenges. D.K. Srivastava, Chief Policy Advisor at EY India, stated that the Indian economy has navigated global headwinds with notable skill.
"The core message is clear," Srivastava said. "Global supply chain uncertainties and tariff-related issues have not significantly dented India's growth prospects. Estimates of around 7.4% from the National Statistics Office, alongside 7.2% from the World Bank and now 7.3% from the IMF, indicate that FY26 will be a very strong year." He acknowledged some expected moderation in FY27, partly due to statistical base effects.
Srivastava emphasized that India's growth narrative remains solid despite worldwide uncertainties. "There are no major downside risks to growth, provided we continue to negotiate these global challenges effectively and minimize their adverse impact on our economy," he added.
This assessment follows the World Bank's recent projection last week. The Bank forecasted 7.2% growth for India in FY26, citing robust domestic demand, strong private consumption, supportive tax reforms, and improved real household earnings in rural areas. It projected a 6.5% expansion for FY27.
Experts attribute India's strong FY26 outlook to a carefully sequenced set of policy reforms. Fiscal, monetary, and trade measures have collectively cushioned the economy and laid a foundation for future growth, even amid slowing global demand and rising trade friction.
Rumki Majumdar, an economist at Deloitte India, outlined the path forward. "As India enters 2026, several themes will shape the next growth phase, demanding continued policy pragmatism. We expect India to grow between 7.5% and 7.8% this fiscal year, followed by 6.6% to 6.9% in the next," she said.
Domestic and International Risks
Majumdar also highlighted specific risks requiring vigilance. "US tariff policies and the conclusion of the India-US trade deal will be crucial for reviving exports and investment, even as India diversifies its trade exposure," she noted.
She pointed to geopolitical tensions in Central Asia as a potential disruptor of commodity prices and key logistics routes, including the vital Red Sea corridor.
On the domestic front, Majumdar identified several concerns:
- Delayed transmission of policy rate cuts to credit growth.
- A possible resurgence of inflation as demand accelerates, given that core inflation has remained above 4%.
- Potential implications of lower tax revenues for fiscal consolidation efforts this year.
IMF's Cautions on AI and Trade
Despite acknowledging global economic resilience, the IMF issued clear warnings. It stated that risks to the outlook remain tilted to the downside, primarily concerning artificial intelligence and trade.
The fund expressed concern that over-optimism regarding AI's productivity gains could lead to a painful reckoning. If expectations are not met, a sharp decline in investments in the high-tech sector and AI adoption spending could occur. This might trigger an abrupt financial market correction.
Such a correction could start with AI-linked companies before spreading to other market segments, ultimately eroding household wealth. The IMF warned that spillover effects would spread directly through trade flows, initially impacting export-oriented economies specializing in technology products. The tightening of global financial conditions would then radiate the impact to the rest of the world.
"The impact on growth is highly uncertain and depends critically on how financial conditions react," the IMF cautioned.
Simultaneously, the fund warned that trade tensions could flare up again. This would prolong uncertainty and place a heavier burden on economic activity. The eruption of new domestic political or geopolitical tensions could introduce fresh layers of uncertainty, disrupting the global economy through financial markets, supply chains, and commodity prices.
The AI Upside and Trade Dynamics
The IMF also outlined a positive scenario for AI. It acknowledged that the technology could significantly improve productivity and boost medium-term growth prospects sooner than anticipated. Rapid innovation might foster creative destruction and revive business dynamism globally.
In this optimistic case, global growth could receive a lift of up to 0.3 percentage points in 2026. In the medium term, annual growth might be boosted by between 0.1 and 0.8 percentage points, depending on the global speed of AI adoption and improvements in readiness.
On global trade, the IMF expects volume growth to decline from 4.1% in calendar year 2025 to 2.6% in 2026, before increasing to 3.1% in 2027. These dynamics reflect patterns of front-loading and adjustments in trade flows responding to new policies.
Over the medium term, expansionary fiscal packages in economies with current account surpluses are expected to help reduce global imbalances. Countering this force is the ongoing, technology-driven surge in business investment. This investment wave is likely to continue attracting capital flows to the United States, maintaining a complex balance in the international economic landscape.
