Key Points:
- India economic growth remains the fastest among major economies, with 7.3% in 2025-26 and 6.4% in the following two years.
- Inflation is easing, giving room for fiscal consolidation and capital spending.
- Global risks like AI bubbles and trade tensions persist, requiring coordinated policies.
India will remain the world’s fastest-growing major economy through 2027-28, with growth projected at 6.4 percent in both years, the International Monetary Fund said Tuesday, citing strong momentum and easing inflation. These projections highlight the resilience of India economic growth over the coming years.
The IMF, in its January update to the World Economic Outlook, also raised India’s growth forecast for 2025-26 to 7.3 percent, broadly in line with government estimates and ahead of the presentation of the Union Budget.
IMF Lifts Near-Term Outlook, Sees Gradual Moderation
The IMF said India’s upgraded 2025-26 projection reflects stronger-than-expected economic performance in the third quarter and continued momentum into the fourth quarter. The revision brings the IMF estimate closer to the National Statistics Office’s first advance estimate of 7.4 percent growth for the fiscal year.
“In India, growth is revised upward by 0.7 percentage point to 7.3 percent for 2025, reflecting the better-than-expected outturn in the third quarter of the year and strong momentum in the fourth quarter,” the IMF said in the update.
The fund expects growth to moderate to 6.4 percent in 2026-27 and 2027-28 as temporary and cyclical factors fade. Even with the slowdown, India is projected to outperform all other major economies over the medium term.
The IMF also expects inflation in India to ease further. “Inflation in India is expected to go back to near target levels after a marked decline in 2025 driven by subdued food prices,” the report said, aligning with recent projections by the Reserve Bank of India.
Economists say the combination of steady growth and moderating inflation provides policymakers room to focus on fiscal consolidation while maintaining capital spending. “The IMF numbers reinforce the view that India economic growth remains intact even as global conditions stay uncertain,” said a Mumbai-based economist at a leading brokerage firm.
Global Growth Steady, Risks Tilt to the Downside
Globally, the IMF left its outlook largely unchanged, projecting world output to grow at 3.3 percent in 2025, the same pace as in 2024, and again in 2026. Growth among major economies remains uneven.
The United States is expected to expand by 2.1 percent in 2025 and 2.4 percent in 2026, while China’s economy is forecast to grow by 5 percent in 2025 and slow to 4.5 percent in 2026, according to the IMF.
The fund cautioned that stable headline numbers mask underlying vulnerabilities. It said headwinds from shifting trade policies and geopolitical tensions are being offset by tailwinds such as strong investment in technology, including artificial intelligence, and broadly accommodative financial conditions.
“This steady performance on the surface results from the balancing of divergent forces,” the IMF said, adding that risks to the outlook remain tilted to the downside.
IMF Warns of AI Bubble, Calls for Policy Coordination
The IMF flagged the risk of an artificial intelligence-driven investment bubble, warning that overly optimistic expectations could trigger a sharp correction. A reversal in AI-related investment could hurt consumption, financial markets, and global trade, particularly in technology-exporting economies.
“Should expectations about AI-driven productivity gains turn out to be overly optimistic, a sharp drop in real investment in the high-tech sector and a more prolonged correction in stock market valuations could ensue,” the report said.
The fund also highlighted risks from trade uncertainty and geopolitical developments, calling for coordinated global policy action to support medium-term growth. It urged advanced economies to pursue credible fiscal consolidation and structural reforms, while encouraging emerging markets to strengthen domestic demand and resilience.
For India, the IMF outlook comes weeks before the annual budget and is likely to shape expectations around public spending, deficit targets and reform priorities. “India economic growth is entering the next fiscal year from a position of relative strength,” said a senior policy analyst at a New Delhi think tank. “The challenge will be sustaining India economic growth as global risks intensify.”
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