IMF raises India's GDP growth projection by 20 bps to 6.4% for FY26

The International Monetary Fund (IMF) has marginally raised India’s GDP growth projection to 6.4 per cent for both FY26 and FY27, citing a more accommodative external environment and softening global trade frictions.

This marks an upward revision from the IMF’s April outlook, where it had cut India’s forecast by 30 basis points (bps) for FY26 and 20 bps for FY27, amid heightened geopolitical uncertainty and trade tensions.

The latest World Economic Outlook update reflects improved financial conditions globally, a weakening dollar, and a slight easing in tariff-related “Growth in India is projected at 6.4 per cent in 2025 and 2026, revised upward due to a more benign external environment than previously assumed,” the report noted.

India’s GDP is estimated to have expanded by 6.5 per cent in FY25, the lowest in four years.

For the current fiscal year, the RBI has retained its growth estimate at 6.5 per cent, while the Finance Ministry projects growth in the 6.3 per cent to 6.8 per cent range.

The RBI has also pegged FY27 growth at 6.7 per cent, slightly above the IMF’s latest forecast.

The revision comes as the global growth outlook improves modestly. The IMF now expects world GDP to grow 3 per cent in 2025 and 3.1 per cent in 2026, up from 2.8 per cent and 3 per cent, respectively, forecast in April.

A sharp drop in US tariff rates - from 28 per cent in April to 18.2 per cent as of July 28, according to Yale’s Budget Lab - has also helped ease pressure on international trade flows.

However, the IMF cautioned that tariffs remain “historically high” and that risks to global growth are skewed to the downside, driven by lingering policy uncertainty and structurally lower trade intensity.

Global trade as a share of output is projected to fall from 57 per cent in 2024 to 53 per cent by 2030.

Among major economies, China’s GDP forecast saw the steepest upgrade, now expected to grow 4.8 per cent in 2025, up from 4 per cent projected in April, reflecting a stronger-than-expected Q1 and a reduction in US-China tariffs. Growth in 2026 has also been revised up to 4.2 per cent.

Other countries witnessing upward revisions include the US, Canada, Brazil, Saudi Arabia, and Nigeria, as financial and trade conditions improve.

Despite the marginal upgrades, the IMF said global growth remains well below the pre-pandemic average, and the outlook is fraught with risks ranging from trade fragmentation to uncertain monetary policy paths.