IMF raises India’s FY26 growth forecast to 7.3%, warns of slower pace ahead

India’s growth story has received a fresh vote of confidence from the IMF, which has raised its economic expansion forecast for 2025 by a sharp 0.7 percentage point, citing stronger-than-expected performance in the second half of the year. In its latest World Economic Outlook Update, the IMF said India continues to stand out as one of the fastest-growing major economies globally, even as it cautioned that growth is likely to cool gradually in the years beyond. The revised forecast comes as the global economy continues to move at different speeds, with growth cooling in advanced economies and geopolitical and financial risks still hanging over markets. Against this backdrop, India’s resilience - driven by domestic demand, public investment and improving inflation dynamics has helped anchor growth across emerging markets. While the Fund expects India’s pace to moderate after 2025, it believes the economy will remain a key engine of global expansion.

Why the IMF raised India’s 2025 growth forecast?

The IMF now expects India’s gross domestic product to grow 7.3 per cent in 2025, up from its earlier estimate of 6.6 per cent. According to the Fund, the upward revision reflects a “better-than-expected outturn in the third quarter and strong momentum in the fourth quarter”, pointing to broad-based economic strength. Stronger government spending on infrastructure, steady consumer demand and a gradual revival in private investment have been key drivers.

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Growth likely to moderate after 2025

Despite the upgrade for 2025, the IMF expects India’s growth to ease in the following years. The Fund has projected GDP expansion of 6.4 per cent in 2026 and 2027, as cyclical and temporary factors begin to fade. The slowdown is not being read as a sign of stress, but as a move back to a more sustainable pace after a phase of faster-than-normal growth. The IMF pointed out that part of the current momentum reflects favourable base effects, early public spending and post-pandemic catch-up, factors that are unlikely to last forever. Even at 6.4 per cent, India would remain among the fastest-growing large economies in the world, significantly outperforming most advanced nations.

India’s role among emerging economies

The IMF highlighted that India will continue to be a major contributor to growth among emerging market and developing economies, which are collectively projected to expand at just over 4 per cent in 2026 and 2027. Emerging and developing Asia, in particular, is benefiting from technology-led investment and trade, although the Fund warned that momentum across the region is becoming increasingly uneven. India’s scale, domestic market and policy-driven investment cycle give it a distinct advantage within this group.

The update reinforces India’s growing importance as a stabilising force in the global economy at a time when growth in China and other large emerging markets is slowing.

Globally, the IMF expects the world economy to grow by 3.3 per cent in 2026, the same as its earlier forecast. That steady outlook is being underpinned by easing trade frictions, relatively easy financial conditions and a wave of technology-led investment, especially in artificial intelligence.

At the same time, the Fund warned that this headline number hides sharp differences across regions. Some economies are riding strong investment cycles, while others are weighed down by high debt, weak demand and tighter financial conditions.

Against this backdrop, India stands out, reflecting the strength of domestic demand at a time when export-led growth models are facing growing headwinds. Another positive factor for India is the inflation trajectory. The IMF said inflation in India is “expected to go back to near target levels after a marked decline in 2025”, largely driven by subdued food prices.

Lower and more stable inflation is expected to lift household spending by easing pressure on purchasing power, while also giving policymakers more flexibility to manage growth without losing sight of price stability. This should help keep demand resilient even as the pace of growth cools from its peak.

Even so, the IMF cautioned that risks remain. A rethink of expectations around productivity gains from artificial intelligence could dampen global investment, tighten financial conditions and trigger volatile capital flows — developments that could spill over into emerging markets, including India.

Geopolitical tensions, swings in commodity prices and abrupt shifts in global risk appetite were flagged as additional downside risks. The Fund warned that such risks could weigh on growth if they materialise simultaneously.

AI seen as both an opportunity and a risk

On the upside, the IMF said faster and broader adoption of artificial intelligence could lift global growth over the medium term, provided productivity gains are realised and financial risks are contained.