The International Monetary Fund (IMF) on Tuesday kept its growth forecasts for India unchanged at 7 per cent for FY25 and 6.5 per cent for FY26, holding that pent-up demand accumulated during the pandemic has been exhausted as the economy “reconnects” with its potential growth.
“In India, the outlook is for gross domestic product (GDP) growth to moderate from 8.2 per cent in 2023 to 7 per cent in 2024 and 6.5 per cent in 2025, because pent-up demand accumulated during the pandemic has been exhausted as the economy reconnects with its potential,” it said in its latest World Economic Outlook report.
Earlier this month, the Reserve Bank of India (RBI), in its latest monetary policy committee (MPC) review, also kept its growth projection for the current financial year unchanged at 7.2 per cent, citing robust consumption and investment momentum.
On the global growth front, the latest outlook notes that the growth projection is virtually unchanged from those made earlier in July and is expected to remain stable yet underwhelming at 3.2 per cent in 2024 and 2025. However, the growth forecast for 2025 has been marginally revised downward by 10 basis points from 3.3 per cent projected in July.
The IMF notes that important sectoral and regional shifts underpin the stable global outlook , with goods prices remaining elevated compared with those for services—a lingering effect of the pandemic and its aftermath. Also, a global shift from goods to services consumption is underway, with emerging markets like India and China gaining in manufacturing production.
“This rebalancing is tending to boost activity in the services sector in advanced and emerging markets but is dampening manufacturing. Manufacturing production is also increasingly shifting toward emerging market economies—in particular, China and India—as advanced economies lose competitiveness,” it notes.
“Deeper- or longer-than-expected contraction in China’s property sector, especially if it leads to financial instability, could weaken consumer sentiment and generate negative global spillovers given China’s large footprint in global trade,” it noted.
On the inflation front, the outlook noted that global headline inflation is expected to fall from an annual average of 6.7 per cent in 2023 to 5.8 per cent in 2024 and 4.3 per cent in 2025, with advanced economies returning to their inflation targets sooner than emerging market and developing economies. However, the outlook notes that although goods prices have stabilised, services price inflation remains elevated in many regions, pointing to the calibration of monetary policy accordingly.
“Further disruptions to the disinflation process, potentially triggered by new spikes in commodity prices amid persistent geopolitical tensions, could prevent central banks from easing monetary policy, which would pose significant challenges to fiscal policy and financial stability,” it notes.
For India, the October outlook projects a headline inflation figure of 4.4 per cent for FY25 and 4.1 per cent for FY26.
Highlighting that structural reforms are necessary to lift medium-term growth prospects, the outlook also discusses strategies to enhance the social acceptability of these reforms—a crucial prerequisite for successful implementation.
“Engaging early with key stakeholders, such as trade unions and business associations, has also been an effective approach toward communicating the need for reforms. [Like] in India, key principles deployed in the states of Gujarat and Rajasthan, which pioneered more flexible labour laws, skill development initiatives, and job creation strategies, were later adopted for national labour law reforms,” it noted.