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Washington, Nov 26 (IANS) Despite external headwinds, India’s economic growth rate in fiscal 2026 is expected to remain strong supported by favorable domestic conditions, according to an IMF report released on Wednesday.
Under the baseline assumption of long-term 50 per cent US tariffs, India’s real GDP is projected to grow by 6.6 per cent in FY 2025-26, before decelerating to 6.2 per cent in FY 2026-27, the report said.
India’s economy continues to perform well. Real GDP grew by 7.8 percent in the first quarter of fiscal year 2025/26, following economic growth of 6.5 percent in fiscal year 2024-25. Overall inflation has declined significantly due to low food prices. Supported by adequate capital buffers and low multi-year non-performing assets, the financial and corporate sectors remain resilient. The report said fiscal consolidation has advanced, and the current account deficit has been supported by resilient services exports.
It highlighted that reforms in the Goods and Services Tax (GST) and the resulting effective rate reduction are expected to help mitigate the adverse impact of tariffs. Headline inflation is expected to remain well controlled, reflecting the impact of GST reforms and continued soft food prices. Looking ahead, India’s ambition to become an advanced economy can be supported by pursuing comprehensive structural reforms that enable higher potential growth, it said.
There are significant near-term risks to the economic outlook. On the positive side, the conclusion of new trade agreements and rapid implementation of structural reforms domestically could boost exports, private investment and employment. The downside is that further deepening of geo-economic fragmentation could tighten financial conditions, increase input costs and reduce trade, FDI and economic growth. The report said unexpected weather shocks could impact crop yields, adversely impact rural consumption and lead to a resurgence of inflationary pressures.
IMF Executive Directors commended India’s very strong economic performance and resilience, which has benefited from strong macroeconomic policies and reforms. Amid high uncertainty, directors called for continuation of sound policies and said prompt implementation of structural reforms will be critical to maintaining stability and supporting India’s ambition to become an advanced economy.
The IMF agreed with the government’s plans for continued fiscal consolidation this year, while noting that achieving the fiscal deficit target will require strong expenditure discipline. Welcoming the recent simplification of the Goods and Services Tax (GST), he called for careful monitoring of the fiscal impact of the cuts in GST and personal income tax rates.
The IMF has also supported RBI’s data-dependent approach in monetary policy. They generally feel that, if tariffs remain at current levels, there will be scope for further monetary easing amid inflation dynamics. It recommended continued efforts to enhance monetary transmission as well as greater exchange rate flexibility to help the Indian economy absorb external shocks, with interventions aimed at addressing disordered market conditions in line with a broadly integrated policy framework.
–IANS
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