IMF Projects India’s Growth at 6.6% for FY2025-26, Says GST Reforms to Cushion Tariff Impact

New Delhi, November 27: India’s economic growth is expected to be strong through FY2025-26. The Indian Monetary Fund has projected India’s economic growth at 6.6%. The growth is likely to be supported by favourable domestic conditions and the positive effects of the new GST reforms announced by the government.

Growth Outlook Remains Resilient Despite External Pressures

According to the IMF’s latest annual assessment, India’s economy continued to show strong performance, after it grew by 6.5% in FY2024-25. For the first quarter of FY2025-26, real GDP grew by 7.8%. The IMF also stated that Indian economic growth is expected to grow further, even after ongoing US tariffs, which were levied due to India buying Russian oil. The IMF expects a growth of 6.6% in FY2025-26, and a growth of 6.2% in FY2026-27.

The IMF said that if the tariffs are removed, and new domestic reforms are introduced by the Indian government, this can increase exports, employment, and investment. However, it also said that the risk of geoeconomic fragmentation still exists, and if it increases, it can lead to negative financial conditions, weaker trade, higher input costs, and lower Foreign Direct Investment.

Monetary Policy Guidance and External Shock Management

The IMF said that there is more scope for monetary easing, it said that there should be:

• Stronger monetary transmission
• Greater exchange rate flexibility to absorb external shocks
• FX interventions only to manage disorderly market conditions

Inflation Expected to Stay Contained

The IMF said that inflation declined sharply due to lower food prices and one-time effects of the new GST reforms. Furthermore, it expects the inflation to remain stable going forward. The performance by the financial and corporate sector was also strong, as it saw adequate capital investments and multi-year low non-performing assets. Fiscal consolidation also improved, and the current account deficit is also balanced.

IMF Calls for Continued Fiscal Discipline and Structural Reforms

The IMF praised the strong performance of India, but called for:

• Maintaining spending discipline to achieve fiscal deficit targets
• Monitoring the fiscal impact of GST and personal income tax rate reductions
• Keeping tariff relief measures targeted and time-bound

Structural Reforms Essential for Long-Term Growth

The IMF communicated that structural reforms are important for the long-term growth of India’s economy. It said India should focus on:

• Human capital development
• Female labour force participation
• Continued public investment
• Strengthening the business environment
• Deepening trade integration to boost competitiveness and attract FDI
• Accelerating innovation through R&D investment
• Advancing the green transition with better access to concessional financing

Overall, the report suggested that India’s economic condition is strong and will continue to be stronger going forward.

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