IMF Signals Upward Revision for India's 2026 Growth

India's Economic Momentum Prompts Forecast Upgrade

The International Monetary Fund (IMF) has indicated that it will likely revise India's economic growth forecast for the 2025-26 fiscal year upwards, citing a stronger-than-expected performance. IMF spokesperson Julie Kozack recently described India as a "key growth engine for the world," noting that robust third-quarter data has reinforced the country's economic resilience. This positive assessment comes ahead of the IMF's scheduled release of its updated World Economic Outlook, where the new projections will be officially announced.

Strong Performance in Recent Quarters

The signal for an upgrade follows India's impressive economic expansion of 8.2% year-on-year in the second quarter of fiscal year 2025-26, which marked the fastest pace in six quarters. This performance surpassed market expectations and the previous quarter's growth of 7.8%. The momentum has been primarily fueled by strong domestic demand, supported by both private consumption and significant government capital expenditure. In response to this sustained growth, the Reserve Bank of India (RBI) has already raised its full-year GDP forecast to 7.3%.

The IMF's Current Stance and Expected Changes

The IMF's current projection for India's growth in FY2025-26 stands at 6.6%, which was an upward revision from an earlier estimate. However, as confirmed by Kozack, the recent economic data makes another upgrade likely. Former IMF Chief Economist Gita Gopinath also anticipates the revised forecast will move closer to 7%. The upcoming World Economic Outlook will provide a clearer picture of how the IMF views India's trajectory amid a complex global economic environment.

Key Drivers of India's Growth

Domestic demand has been the central pillar of India's economic strength. The government has played a crucial role by maintaining high public capital expenditure, which stood at 3.4% of GDP in the first half of FY2025-26, focusing on infrastructure and green transition projects. Additionally, policy measures such as direct tax exemptions for the middle-income class announced in the Union Budget 2025-26 have helped boost disposable incomes and revive discretionary spending. On the monetary front, the RBI has supported growth by cutting policy rates by a full percentage point in 2025 to ensure adequate liquidity and sustain the recovery momentum.

Fiscal Consolidation Amid Stimulus

While stimulating growth, the government has also maintained a path of fiscal discipline. The fiscal deficit is targeted at 4.4% of GDP for the current fiscal year, a significant reduction from the pandemic-era high of 9.2% in FY2020-21. This consolidation has been achieved through disciplined expenditure management and buoyant revenue streams. Future reforms, including the planned rollout of GST 2.0 and strategic disinvestment, are expected to support this fiscal prudence without derailing growth.

A Note on Data Quality

Despite the positive outlook, the IMF's annual "Article IV" report raised questions about the precision of India's economic data, assigning its national accounts a "C" grade. The report cited concerns such as an outdated base year (2011-12), discrepancies between production and expenditure figures, and the lack of seasonally adjusted quarterly data. The IMF clarified that this grade does not imply data manipulation but suggests that the figures should be interpreted with some caution. Indian authorities have acknowledged these issues and are working on a comprehensive statistical overhaul, including a new base year, to better capture the structure of the modern economy.

External Risks and Headwinds

India's economy is not immune to global challenges. The depreciation of the rupee, which has crossed the 90-per-dollar mark, and the potential for capital outflows due to narrowing interest rate differentials with the US, pose risks. Furthermore, ongoing uncertainty surrounding a much-anticipated US-India trade deal could moderate export growth. The IMF has also noted that geoeconomic fragmentation and unpredictable weather shocks remain downside risks to the outlook.

The Path Forward: Supply-Side Reforms

With demand-side policy levers largely utilized, the focus is now shifting toward supply-side improvements to sustain long-term growth. The government has signaled its intent to overhaul customs procedures to improve the ease of doing business and reduce logistics costs. Future policy is expected to concentrate on enhancing productivity, empowering Micro, Small, and Medium Enterprises (MSMEs), and developing infrastructure in tier-2 and tier-3 cities to ensure broad-based growth.

Conclusion

India remains a bright spot in the global economy, with its robust domestic fundamentals driving strong growth. The anticipated upward revision from the IMF will further solidify its position as one of the world's fastest-growing major economies. However, navigating external risks and implementing critical structural reforms will be essential to maintain this momentum and achieve the long-term goal of becoming an advanced economy.