Tariffs cannot slow India: IMF growth forecast to 6.6%

India is set to remain a global growth leader with a projected 6.6% GDP rise in 2025–26, driven by strong domestic demand, manufacturing recovery, and service-sector expansion, according to the IMF. It is expected to outpace China’s 4.8% growth. Despite global economic deceleration and tariff challenges, India’s resilience, supported by trade diversification, ensures steady progress. The IMF highlights policy reforms, fiscal stability, and trade diplomacy as critical for sustaining growth.

India is poised to remain one of the fastest-growing major economies globally through 2025–26, with a projected GDP growth of 6.6 percent, according to the latest World Economic Outlook (WEO) report released by the International Monetary Fund (IMF). This optimistic forecast highlights the nation’s ability to withstand international challenges, including higher tariffs imposed by the United States, thanks to its strong domestic performance in the first quarter.

The IMF's revised forecast reflects India's resilience and robust economic fundamentals, even as global growth faces mounting pressures. The upward adjustment from earlier predictions underscores the country’s capacity to navigate external headwinds while maintaining a steady growth trajectory.

India Poised to Outpace China in Economic Growth

India is set to surpass China in economic growth, with the IMF projecting a 4.8 percent GDP increase for China in 2025–26, compared to India’s 6.6 percent. The growth momentum in India is being fueled by a combination of factors, including strong domestic consumption, a rebound in manufacturing, and a thriving services sector.

However, the IMF has slightly moderated its forecast for India’s growth in 2026 to 6.2 percent, cautioning that the remarkable first-quarter performance may not sustain at the same pace as the year progresses. According to the report, the upward revision stems primarily from the carryover effects of the strong start to the fiscal year, rather than a tangible offset to the challenges posed by tariff hikes.

India’s economy grew by 6.5 percent in FY25, adhering to the government’s target growth range of 6.3 to 6.8 percent for FY26. This performance comes against the backdrop of rising global uncertainties, showing India’s ability to maintain its growth momentum.

Global Growth Slows While India Defies the Trend

The IMF projects global GDP growth to decelerate, with estimates of 3.2 percent growth in 2025, slowing further to 3.1 percent in 2026. Advanced economies are expected to expand at a sluggish 1.6 percent, while emerging markets are predicted to grow at an average of 4.2 percent.

Among advanced economies, Spain is forecasted to lead with a 2.9 percent growth in 2025–26, followed by the United States at 1.9 percent. In contrast, Japan and Canada are expected to see more subdued growth at 1.1 percent and 1.2 percent, respectively.

Although the IMF’s October projections show an improvement from April estimates, they remain below pre-tariff levels, reflecting the impact of trade restrictions and policy uncertainties. India, however, has managed to defy the global slowdown with its resilient domestic economy and diversified trade strategies.

Managing Tariff Challenges with Resilience

The IMF report notes that the economic impact of higher US tariffs on Indian and Chinese exports has been less severe than initially anticipated. India’s economic resilience stems from robust domestic demand, strong manufacturing activity, and increasing private investment, which have helped mitigate the effects of trade disruptions.

The IMF acknowledged that India’s ability to adapt and diversify its trade relationships played a crucial role in absorbing the tariff shock. “Resilient domestic demand and trade diversification have limited the negative effects of tariffs,” the report stated.

Global Inflation Eases, But Risks Linger

Global inflation is gradually declining, although the pace of improvement varies across regions. While some economies, including the United States, continue to face elevated price pressures, others have seen more subdued inflation trends. The IMF warned that prolonged uncertainty, protectionist trade policies, and labor market disruptions could hinder global recovery efforts. Additionally, fiscal vulnerabilities and potential corrections in financial markets remain significant risks to watch.

IMF’s Policy Recommendations for a Stable Recovery

The IMF emphasized the importance of rebuilding fiscal buffers and preserving central bank independence to navigate the uncertain global economic environment. It urged policymakers to focus on structural reforms and implement credible, transparent, and sustainable measures to strengthen economic resilience.

The report also called for renewed trade diplomacy and macroeconomic coordination to address the ripple effects of tariffs and supply chain disruptions. By fostering collaboration and enacting sound policies, nations can mitigate the adverse impacts of protectionism and enhance global economic stability.