IMF raises India’s FY25 growth forecast to 6.8%; FY26 outlook unchanged

International Monetary Fund, on Tuesday, projected that Indian economy will likely grow at 6.8% in FY25, compared with 6.5% estimated in January.

The multilateral institution kept its FY26 forecast unchanged at 6.5%.

The IMF revision follows upward revisions by other international lenders, which predict strong domestic demand and a revival in the rural economy to push the economy.

“Growth in India is projected to remain strong at 6.8 per cent in 2024 and 6.5 per cent in 2025, with the robustness reflecting continuing strength in domestic demand and a rising working-age population,” IMF said in its report.

Asian Development Bank, last week, raised India’s growth forecast to 7% for FY25 from 6.7% projected earlier. World Bank, earlier this month, projected Indian economy to log 6.6% growth in FY25, compared with 6.4% earlier.

IMF also revised FY24 growth forecast upward to 7.8%, higher than the government’s growth estimate of 7.6% for the year.

A double-digit growth in investment, along with stellar growth in manufacturing helped push growth in the previous fiscal.

Experts indicate that a revival in private capex is likely to help keep the momentum in the current fiscal.

On the inflation front, IMF kept the FY25 forecast unchanged at 4.6%, with inflation level further declining to 4.2% in FY26.

The IMF estimate is slightly higher than RBI’s inflation projections of 4.5% for FY25.

Data released last week showed that inflation fell to a 10-month low of 4.9% in March, even as food inflation remained sticky above 8%.

However, prospects of above normal monsoon, as predicted by IMD, are likely to provide some reprieve.

The multilateral lender also predicted a slight uptick in current account deficit to 1.4% in FY25 from 1.2% predicted for FY24.

Risks emanating from geopolitical tensions and rising crude prices could upend those calculations.

Global prospects improve

The IMF also raised 2024 growth forecast for world economy to 3.2% from 3.1% projected earlier.

“Despite gloomy predictions, the global economy remains remarkably resilient, with steady growth and inflation slowing almost as quickly as it rose,” Pierre-Olivier Gourinchas, chief economist, IMF in a note.

Forecast for the US was revised 0.6 percentage point to 2.7%, whereas China’s growth estimates were left unchanged.

However, the multilateral institution did flag inflation as a risk.

“Oil prices have been rising recently in part due to geopolitical tensions and services inflation remains stubbornly high. Further trade restrictions on Chinese exports could also push up goods inflation,” it said.

The fund suggested rebuilding of fiscal buffers, harnessing the potential of artificial intelligence to boost productivity, efficient resource allocation as policy prescription to continue on growth trajectory.