IMF projects India to be fastest-growing major economy in FY26
What's the story
The International Monetary Fund (IMF) has predicted that India will continue to be the world's fastest-growing major economy. The country is likely to record a GDP growth rate of 6.5% in the fiscal years 2024-25 and 2025-26. The economic growth is expected to be driven by strong private investment and macroeconomic stability, the IMF's latest report said.
Economic drivers
Private consumption to drive GDP growth
The IMF report adds, "Real GDP is expected to grow at 6.5% in 2024-25 and 2025-26, supported by robust growth in private consumption on the back of sustained macroeconomic and financial stability." This projection is in line with the Indian government's second advance estimate, which also predicts a growth rate of 6.5% for the economy in the fiscal year 2024-25.
Reform recommendations
IMF highlights need for structural reforms in India
The IMF has emphasized the need for broad-based structural reforms for India to generate high-quality jobs, revitalize investment, and unleash higher potential growth. The agency recommends focusing on implementing labor market reforms, strengthening human capital, and supporting greater participation of women in the labor force. It also stresses that boosting private investment and foreign direct investment (FDI) is key to India's economic growth.
Policy prerequisites
Stable policy frameworks needed for economic growth
The IMF maintains that stable policy frameworks, greater ease of doing business, governance reforms, and increased trade integration are needed to boost private investment and FDI. These measures should include both tariff and non-tariff reduction strategies. Despite recent moderation, India's economic growth has remained robust with a GDP growth of 6% year-on-year (YoY) in the first half of 2024-25.
Financial resilience
India's financial sector remains resilient
The IMF observes that India's financial sector has remained resilient, with non-performing loans at multi-year lows. Fiscal consolidation has continued, and the current account deficit has remained well contained, aided by strong growth in service exports. However, inflation has declined within the tolerance band of the Reserve Bank (of 2% to 6%), although food price fluctuations have caused some volatility.