India’s Growth Outlook: IMF Pegs 2025 Expansion at 6.6%, Trims Forecast for 2026

The International Monetary Fund (IMF) has projected that India’s economy will grow by 6.6% in 2025, reaffirming its position as the world’s fastest-growing major economy. However, the global lender has slightly reduced its forecast for 2026, signaling caution over inflation, fiscal tightening, and external headwinds.

According to the latest World Economic Outlook, the IMF’s revised projection reflects both strong domestic demand and emerging global uncertainties, including the effects of fluctuating oil prices and geopolitical tensions.

India remains fastest-growing major economy

Despite the downward revision for 2026, India continues to outpace other major economies such as the United States, China, and the Eurozone. The IMF highlighted that India’s manufacturing revival, infrastructure investment, and digital transformation remain its key growth engines.

The report also praised government efforts to maintain fiscal stability while expanding capital expenditure — a move that has boosted investor confidence and industrial sentiment.

India’s 2025 growth estimate of 6.6% marks a steady pace compared to 2024’s expected 6.8%, showing a modest slowdown but strong resilience in a volatile global economy.

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Inflation, fiscal deficit remain key concerns

The IMF has warned that rising food prices, persistent core inflation, and a moderate fiscal deficit could weigh on future growth.
While the Reserve Bank of India (RBI) has maintained its repo rate steady to support consumption and investment, analysts believe a prolonged inflationary trend could pressure household spending in rural India.

The fiscal deficit for FY25 is projected to hover around 5.1% of GDP, with gradual consolidation expected as revenue collections improve.
The IMF also called for continued focus on labour reforms, ease of doing business, and private investment incentives to sustain growth beyond the medium term.

Global slowdown, oil prices pose risks

The report noted that India’s economy remains sensitive to global shocks, particularly from crude oil and trade disruptions.
With Donald Trump’s renewed tariff policies on China and global supply chains facing uncertainty, Indian exporters may experience a short-term impact on goods demand.

Additionally, rising interest rates in the U.S. could strengthen the dollar, leading to capital outflows from emerging markets, including India. However, the IMF praised India’s robust forex reserves and macroeconomic discipline, which have cushioned earlier shocks.

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Sectoral outlook: services, manufacturing, and investment

The IMF report underlined India’s services sector — especially IT, financial technology, and digital payments — as the backbone of its economic strength. The manufacturing sector, boosted by the Make in India and Production-Linked Incentive (PLI) schemes, is expected to gain further momentum in FY25.

Foreign Direct Investment (FDI) inflows remain strong, especially in sectors like semiconductors, clean energy, and electric mobility.
However, the IMF cautioned that India must diversify its export base and address infrastructure bottlenecks to maintain competitiveness in the long run.

Experts’ reactions

Economists welcomed the IMF’s forecast, saying it reaffirms India’s global economic position but also highlights the need for policy caution.

“India is growing faster than any other large economy, but inflation and fiscal imbalances remain underlying challenges,” said Dr. Soumya Kanti Ghosh, Chief Economic Advisor at SBI.
He added that consistent reforms and targeted welfare measures will be critical to maintain the current pace of growth.

Meanwhile, independent economist Devendra Pant pointed out that the IMF’s revision for 2026 reflects structural shifts in consumption and investment, not a slowdown in fundamentals.

The bigger picture: global headwinds and domestic resilience

Globally, the IMF expects the world economy to expand by 3.2% in 2025, slightly slower than earlier estimates. Advanced economies are projected to grow by just 1.4%, while emerging markets, led by India and Indonesia, are likely to drive more than two-thirds of global growth.

For India, the path ahead will depend on how it navigates its energy import dependence, job creation challenge, and rural recovery. The government’s continued push for digital infrastructure, renewable energy, and fiscal prudence could keep the economy on a stable track despite external shocks.

The Editorial Team of Behind The Headlines concludes that while India’s growth outlook remains strong and steady, the next two years will test the government’s ability to balance fiscal control with social spending, especially as global economic volatility intensifies.