IMF Raises India's Growth Forecast to 6.6% for 2025-26 Despite US Tariff Challenges

The International Monetary Fund (IMF) has revised India's GDP growth forecast upward to 6.6% for 2025-26, an increase from its previous projection of 6.4%, despite the recent punitive tariffs imposed by the United States on Indian exports.

According to the IMF's World Economic Outlook released Tuesday, this upward revision is attributed to "carryover from a strong first quarter, more than offsetting the increase in the US effective tariff rate on imports from India since July."

India's economy demonstrated remarkable resilience in the April-June quarter of 2025-26, achieving its fastest growth rate in at least a year at 7.8%, driven primarily by robust private consumption.

The implementation of comprehensive GST reforms by the Indian government, which reduced tax rates on consumer goods and services across various categories, is expected to further strengthen domestic demand. Analysts believe this increased domestic consumption will help counterbalance the negative impact of reduced external demand resulting from US tariff increases.

The IMF's optimistic outlook aligns with the World Bank's recent decision to raise its growth forecast for India in FY26 from 6.3% to 6.5%, reinforcing confidence in India's economic trajectory.

While positive about India's prospects, the IMF projects that emerging market and developing economies collectively will experience a gradual slowdown, with growth moderating from 4.3% in 2024 to 4.2% in 2025, and further declining to 4% by 2026.

"Beyond China, emerging market and developing economies more broadly showed strength, sometimes because of particular domestic reasons, but recent signals point to a fragile outlook there as well," states the IMF report.

The report additionally highlights that higher US tariffs are restricting external demand, while increasing trade policy uncertainty is negatively impacting investment in major export-oriented economies.

During a statement last week, IMF Managing Director Kristalina Georgieva praised India as a key growth engine of the global economy amid shifting international growth patterns.

"Global growth is forecast at roughly 3 per cent over the medium term-down from 3.7 per cent pre-pandemic. Global growth patterns have been changing over the years, notably with China decelerating steadily while India develops into a key growth engine," Georgieva remarked.

She acknowledged that countries have implemented decisive economic policies, the private sector has demonstrated adaptability, and the anticipated disruption from US tariffs has proven less severe than initially feared.

However, Georgieva cautioned against premature optimism, noting that "global resilience has not yet been fully tested. And there are worrying signs the test may come."