IMF raises India’s FY27 growth forecast by 60 bps to 7% on strong domestic demand

The International Monetary Fund (IMF) has raised India’s economic growth forecast for the current fiscal year by 60 basis points to 7%, citing stronger-than-expected economic momentum, resilient domestic demand and robust services activity. The upgrade comes even as geopolitical tensions and elevated energy prices pose risks to the global economy.

In its latest World Economic Outlook (WEO), released on Tuesday during the Fund’s annual meetings in Bangkok, the IMF raised its projection for India’s gross domestic product (GDP) growth in 2026-27 (FY27) to 7% from 6.4% estimated in July. It also raised its FY28 forecast to 7% from 6.7%, signalling expectations of sustained economic momentum.

The revision reverses the IMF’s July downgrade, when it cut its FY27 projection by 10 basis points to 6.4% from 6.5% in April, citing higher energy prices and their potential pass-through to domestic fuel prices. Stronger-than-expected economic activity and consumption have since helped offset concerns over the West Asia war, crude oil prices and global uncertainty.

Other institutions have also turned more optimistic. The Reserve Bank of India (RBI) earlier this month raised its FY27 real GDP growth forecast to 7.1% from 6.7% in August and 6.6% in June. The World Bank last week raised its forecast by 50 basis points to 7.1%, while cautioning that growth could moderate in the second half of the fiscal year. The Paris-based Organisation for Economic Cooperation and Development (OECD) raised its projection by 80 basis points to 7.1% last month. The Asian Development Bank, S&P Global Ratings and Fitch Ratings have also raised their growth expectations to around 7%, citing robust June-quarter activity and resilient domestic demand.

The latest projections suggest broad agreement among major institutions that India will remain among the fastest-growing large economies, although the pace of expansion will depend on the durability of domestic demand and the extent to which external shocks affect prices, investment and trade.

The IMF marginally raised its global growth forecast for 2026 to 3.1% from 3% in July, while retaining its 2027 projection at 3.4%. Investment in artificial intelligence and technology-related activity is supporting some economies, but energy-importing countries face pressure from higher fuel costs.

The Fund warned that a prolonged West Asia war, renewed inflationary pressures and financial market repricing could weaken growth. For India, higher oil prices could push up inflation and transportation and production costs, strain the current account, reduce household purchasing power and complicate monetary policy decisions. A slowdown in major trading partners, including China, could also weigh on merchandise exports and investment sentiment.

The IMF’s improved assessment nevertheless points to India’s relative resilience. Sustained domestic consumption and services activity have provided a buffer against external pressures, although the durability of demand will be crucial to sustaining growth through the second half of FY27.

Compared with January 2026, the medium-term outlook has become more uneven, with downgrades concentrated among economies directly affected by the West Asia war and energy-importing emerging market and developing economies, excluding India.

"India stands out with upward revisions, reflecting sustained momentum and growing evidence of stronger growth potential supported by favourable demographic dynamics, a large and expanding domestic market, and continued structural reforms,” the report said.

The IMF said free trade agreements could benefit economies such as India by lowering trade barriers and strengthening supply chains.

"Efforts to negotiate or deepen new regional and bilateral trade agreements-such as the EU's recent trade agreements with India and MERCOSUR (the Southern Common Market) or the United Kingdom's agreement with India-could lower tariffs and nontariff barriers on traded goods and services among participating economies, facilitate adjustments to recent trade policy changes, and strengthen supply-chain resilience,” the report said.

The benefits will depend on implementation. India will need to improve logistics, customs procedures and standards compliance, while strengthening the competitiveness of small and medium-sized enterprises. Greater trade integration could support investment, employment and productivity, complementing rather than replacing domestic demand.

The IMF’s decision to raise its FY28 growth forecast to 7% suggests it expects India’s momentum to extend beyond the current fiscal year. However, the outlook remains vulnerable to external shocks.

“The latest projections suggest broad agreement among major institutions that India will remain among the fastest-growing large economies,” the report said, while cautioning that the pace of expansion will depend on “the durability of domestic demand and the extent to which external shocks affect prices, investment and trade.”

Subhash is the infrastructure editor at Mint and tracks the momentous developments taking place in the space that is fast changing the Indian landscape. He finds reporting to be a passion that provides the necessary adrenaline rush and keeps you going.

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