In its assessment released on Wednesday, the IMF noted that India’s economy “continues to perform well,” with real GDP growth of 6.5% in FY2024/25 and a sharper-than-expected 7.8% expansion in Q1 FY2025/26. Inflation has “declined markedly” on soft food prices, while banks and corporates remain well capitalised, with multi-year low non-performing assets. Fiscal consolidation is progressing, and the current account deficit remains contained due to resilient services exports.
Under the IMF’s baseline—which assumes prolonged 50% U.S. tariffs—growth is projected at 6.6% in FY2025/26 before moderating to 6.2% in FY2026/27. The recent GST reform, which reduces the effective rate, is expected to help cushion tariff shocks while keeping inflation well contained.
The Board highlighted significant near-term risks: deeper global fragmentation could tighten financial conditions, raise input costs and weigh on trade, FDI and growth. Weather shocks remain a major uncertainty for rural consumption and inflation. Upside risks include faster domestic reforms and new trade agreements, which could lift exports, investment and employment.
IMF Directors called for continued fiscal discipline to meet this year’s deficit target, careful monitoring of the fiscal impact of lower GST and personal income tax rates, and targeted, time-bound tariff relief measures. They urged the government to replenish buffers through stronger revenue mobilisation and more efficient expenditure, including a more targeted social safety net. States’ fiscal sustainability and contingent liabilities also require close attention, they said.
On monetary policy, Directors supported the RBI’s data-dependent stance and said that if tariffs persist, “there would likely be scope for further monetary easing” given benign inflation. They recommended stronger monetary transmission and greater exchange-rate flexibility, with FX interventions limited to addressing disorderly conditions.
The IMF found India’s financial system sound but urged vigilance on risks from nonbank financial institutions, rising interconnectedness and concentration. It encouraged further financial-sector reforms consistent with FSAP and FATF recommendations.
Structural reforms, the Fund stressed, remain central to India’s ambition of becoming an advanced economy—particularly improving human capital, boosting female labour-force participation, deepening trade integration, strengthening the business environment, investing in R&D and accelerating the green transition with concessional finance. Directors also noted progress on data quality and encouraged continued improvements.
