IMF revises India’s FY25 growth forecast upward to 6.5%

Domestic demand resilience will help India carry forward the growth momentum in FY25 as the world prepares for a soft landing, the International Monetary Fund said Tuesday, noting that the Indian economy will grow 6.5% compared with the 6.3% projected earlier.

“Growth in India is projected to remain strong at 6.5% in both 2024 and 2025, with an upgrade from October of 0.2 percentage point for both years, reflecting resilience in domestic demand,” the international fund said in the January update of the World Economic Outlook.

The finance ministry in its economic review before the budget has projected Indian economy to grow close to 7% in FY25.

The multilateral institution projected Indian economy to grow 6.7% in FY24.

The first advance estimate released by the government earlier this month pegged FY24 growth at 7.3%.

IMF also revised the global economy forecast to 3.1% for 2024 from 2.9% projected earlier. The growth is expected to rise marginally to 3.2% in 2025.

“The pace of expansion remains slow, and turbulence may lie ahead,” said Pierre-Olivier Gourinchas, chief economist, IMF.

Renewed geopolitical tensions, fiscal concerns and persistence of core inflation were pointed as risks.

The IMF also cautioned central banks acting too early on rate easing.

“They must avoid premature easing that would undo many hard-earned credibility gains and lead to a rebound in inflation,” it said, noting they could not delay rate cuts either.

The fund also pointed out that fiscal consolidation may get delayed in the coming years, as many countries are expected to head for elections in the coming year.

However, economists indicate that India will likely keep to the fiscal path with a target of 5.3% of GDP in the interim budget.

The government plans to reduce the fiscal deficit to 4.5% of GDP in FY26.