IMF Upgrades India’s GDP Growth Estimate for FY26, Citing Strong Domestic Demand Despite US Tariffs

The International Monetary Fund (IMF) has adjusted India's growth forecast for the 2025-26 fiscal year, increasing it by 0.2 percentage points to 6.6%. This revision reflects India's robust economic momentum, which is expected to counterbalance the effects of elevated U.S. tariffs on Indian exports. The IMF's World Economic Outlook report highlighted that strong private consumption contributed to India's GDP growth of 7.8% in April-June, maintaining its status as the fastest-growing major economy.

Despite this positive outlook for 2025-26, the IMF has reduced its forecast for India's growth in the next fiscal year by 0.2 percentage points, bringing it down to 6.2%. This adjustment aligns with similar projections from the World Bank, which also lowered its forecast for the upcoming fiscal year by 20 basis points to 6.3%, citing the impact of U.S. tariffs as a contributing factor.

Global Economic Trends

In a broader context, the IMF anticipates that emerging market and developing economies will experience a slowdown in growth over the coming years. Growth is projected to decrease from 4.3% in 2024 to 4.2% in 2025 and further down to 4% in 2026. The report notes that while some emerging markets have shown resilience due to domestic factors, there are signs of a fragile outlook overall.

The report also highlights that increased U.S. tariffs are dampening external demand and creating uncertainty in trade policies, which is affecting investment levels in major export-driven economies. This trend underscores the challenges faced by countries heavily reliant on exports amid shifting global trade dynamics.

India's Economic Resilience

India's financial year spans from April to March, and despite challenges such as high U.S. tariffs, the country's economic resilience remains evident through strong private consumption and robust GDP growth rates. The upward revision for India's growth in 2025-26 is attributed to a "carryover from a strong first quarter," which more than compensates for increased U.S. tariff rates on imports from India since July.

The IMF's upgrade follows closely after the World Bank's decision to raise its own forecast for India's growth in 2025-26 from 6.3% to 6.5%. Both institutions acknowledge India's potential for sustained economic expansion despite external pressures.

Overall, while India continues to demonstrate economic strength, global uncertainties and trade tensions remain significant factors influencing future growth trajectories across emerging markets and developing economies.