The International Monetary Fund has significantly raised its growth projection for India, citing a powerful quarterly performance and resilient domestic demand
The International Monetary Fund has revised India’s economic outlook upward in its latest World Economic Outlook update released this Monday. The multilateral lender now expects the Indian economy to expand by 7.3 per cent in the current fiscal year, a 0.7 percentage-point increase from its October estimate. This revision reflects stronger-than-expected third-quarter 2025 performance and sustained momentum that has carried into the final months of the financial year.
This upgrade arrives at a critical juncture for the global economy, which is grappling with shifting trade policies and high-tech disruptions. By raising the FY26 growth forecast, the IMF has effectively positioned India as the primary engine of global recovery. While other major economies are projected to see a cooling effect, India’s internal consumption and public investment remain robust enough to offset external trade shocks and global volatility.
Drivers of the surprise economic acceleration
The primary reason for the upgraded FY26 growth forecast is the exceptional outturn in recent quarters. Official government data suggests that the July to September period saw a growth rate of 8.2 per cent, which surpassed almost all street estimates. This was largely driven by a significant uptick in manufacturing activity and a surge in service exports that have remained resilient despite geopolitical tensions in Europe and the Middle East.
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Domestic demand has also played a pivotal role in the IMF’s calculations. Private consumption has rebounded as inflation began to trend toward the Reserve Bank of India’s target of 4 per cent. Subdued food prices and a cooling of global commodity costs have increased the disposable income of the Indian middle class, further supporting the optimistic FY26 growth forecast. This internal strength provides a necessary buffer against the slowdowns seen in traditional export markets like the Euro Area and North America.
Shifting global trade dynamics and AI investments
The global context for this revision is one of “balancing divergent forces,” according to the IMF. While the threat of new trade tariffs has created uncertainty, the surge in technology-related investments has provided a significant tailwind for the Asian region. India is increasingly seen as a beneficiary of this shift, as global firms look to diversify their supply chains and invest in high-tech manufacturing under the “China Plus One” strategy.
The IMF notes that the rapid adoption of artificial intelligence is already showing early signs of productivity gains in India’s massive IT sector. This technological transition is expected to support the FY26 growth forecast by attracting more foreign direct investment. However, the Fund also cautions that a potential disappointment in AI productivity expectations could lead to a pullback in global investment, which remains a key risk factor for emerging markets in the coming years.
Projections for the medium-term moderation
While the immediate outlook is bullish, the IMF predicts a moderation in the pace of expansion after the current fiscal year. The growth rate is projected to ease to 6.4 per cent in FY27 and FY28 as temporary cyclical factors begin to wane. This slowdown is viewed not as a sign of weakness but as a transition to a more sustainable long-term growth path. The easing of the FY26 growth forecast in later years reflects a return to the structural potential of the economy after a period of intense post-pandemic catch-up.
Fiscal consolidation also remains a priority for the government as it seeks to bring down the debt-to-GDP ratio. The IMF suggests that while public investment has been a major driver of recent performance, the baton will eventually need to pass to the private sector to sustain momentum. Lowering the fiscal deficit while maintaining high capital expenditure will be a delicate balancing act for policymakers as they navigate the transition from the current high growth phase.
The Hinge Point
The IMF’s upgrade of the FY26 growth forecast marks the moment when the narrative of India as a “recovery story” ends and its role as a “global anchor” begins. This is the hinge point because it marks the first time that India’s domestic resilience has been officially recognised as powerful enough to decouple from a stuttering global trade environment. The story changes here because the world can no longer view Indian growth as a fortunate byproduct of global tailwinds; instead, it is now an independent force that is single-handedly keeping global averages afloat.
This shift means that the global investment community must treat India as a defensive asset rather than a risky emerging market. What can no longer remain the same is the perception that India is purely dependent on foreign capital to thrive. By raising the FY26 growth forecast during a period of intense global trade friction, the IMF has confirmed that the Indian economy has achieved a level of internal maturity that allows it to grow in spite of the world, rather than because of it.