IMF Raises India’s Growth Forecast to 7.3% for FY26, Easing to 6.4% in FY27

Growth forecast is fuelled by a strong GDP performance in Q2 FY26 and continued momentum into the fourth quarter

By Samreen Wani

Last Updated: Jan 19, 2026, 14:56 IST2 min

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The International Monetary Fund (IMF) has upgraded India’s growth projection for FY26 to 7.3 percent, a 0.7 percentage point increase from its October forecast, according to the latest World Economic Outlook Update released on Monday.

The report states that the upward revision reflects India’s “better-than-expected” economic performance in the third quarter of 2025 (Q2 FY26) and “strong momentum continuing into the fourth quarter”. It projects India’s growth will moderate to 6.4 percent in FY27 as cyclical and temporary factors “begin to wane”.

India continues to remain the fastest-growing major economy in the world, even as the IMF expects the world output to maintain a steady growth of 3.3 percent in 2025 and 2026. This is expected to marginally slowdown in 2027 to 3.2 percent.

Global economic growth remains resilient despite divergent forces, with technology-related investment surging particularly in North America and Asia.

The report notes that although tariffs and market uncertainty continue to dampen activity, their impact on growth is expected to diminish throughout 2026 and 2027. This stability is the result of tailwinds from a surge in technology investments. The report explains that as trade policy disruptions are being countered by a surge in AI-driven investments, favourable financial conditions and fiscal and monetary support also support the outlook.

Rapid AI adoption could significantly improve productivity and boost medium-term growth prospects globally. Based on the pace of AI integration and advancement, the IMF projects a growth boost of 0.3 percentage points in 2026, potentially rising to 0.8 points over the medium term. The benefits could be shared across economies if accompanied by complementary policies addressing power supply constraints and workforce transition programs.

However, the global economic outlook faces downside risks, according to the IMF. Key concerns include potential disappointment in AI-driven productivity expectations, trade policy disruptions, and geopolitical tensions that could affect supply chains and commodity prices. Elevated public debt levels in several major economies also pose stability risks.
For emerging markets and developing economies, growth is expected to stay just above 4 percent in both 2026 and 2027. The IMF highlighted that momentum varies considerably across different countries and sectors within this group.

Meanwhile, global trade volume growth is expected to decline from 4.1 percent in 2025 to 2.6 percent in 2026. But volumes are expected to bounce back to 3.1 percent in 2027, reflecting patterns of “front-loading and trade flow adjustments to new policies”.

The global inflation, however, is on a downward trajectory, expected to hit 3.4 percent by 2027 from an estimated 4.1 percent in 2025, though the US may see a slower return to target levels than its peers.

On inflation, the IMF expects India to see a marked decline in FY26, driven by subdued food prices, with inflation returning to near-target levels subsequently. This contrasts with some advanced economies, particularly the United States, where inflation is projected to return to target more gradually.

First Published: Jan 19, 2026, 15:01

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