Why IMF’s growth upgrade for India doesn’t tell the full story
The International Monetary Fund (IMF), in its October update, raised India’s 2026-27 GDP growth forecast to 7% from 6.5% earlier. The revision follows India’s 7.8% growth in the first quarter of the year, despite disruptions from the West Asia war, strengthening the outlook for the full year.
However, the headline number does not tell the full story. India was not the only country to receive a sizeable growth upgrade. Rupee depreciation has reduced India’s projected GDP in current dollar terms compared with the IMF’s April forecast, and the country’s global GDP ranking has temporarily slipped to sixth, behind the UK. A recovery in the rankings hinges on sustaining nominal growth of over 10% in current dollar terms.
While the 7% growth does put India as the fastest-growing major economy, this is not a new development, especially since an ageing China has slowed in recent years.
Temporary resilience?
India was among several major economies to receive an upward revision for 2026 (FY27 for India), signalling that the West Asia war has not impacted growth trajectories generally as was previously feared.
Among the biggest 15 countries by GDP, South Korea saw the sharpest upgrade for 2026, with its forecast rising to 3.3% from 1.9% in April. Germany’s forecast increased to 1.32% from 0.79%, while the UK’s rose to 1.27% from 0.8%. Even Brazil, Italy, and China saw their growth forecast lifted.
While the growth upgrade for India is not an isolated achievement, the IMF noted that India stood out with the upward revisions, “reflecting sustained momentum and growing evidence of stronger growth potential supported by favorable demographic dynamics, a large and expanding domestic market, and continued structural reforms”.
It also noted that the global economy, in general, has withstood the latest shock on the back of two factors: rerouting of energy supplies and the investment boom triggered by artificial intelligence. However, it also highlighted that this resilience has also come under strain amid dwindling energy market inventories and rising borrowing costs.
Some of these strains are already playing out in India. The elevated crude oil prices are making the inflation outlook worse, and rising interest rates are consistently prompting selling by foreign investors and putting pressure on the rupee.
$5 trillion: The milestone mirage
The rupee weakness, in particular, is weighing on India’s GDP size in current dollar terms. While GDP growth in rupee terms shows consistent resilience, the sharp depreciation in the rupee over the past year has pulled India’s ranking down from fifth to sixth, though temporarily. This is in sharp contrast to the earlier expectation of India having become the fourth largest economy by now.
This has a bearing on the $5 trillion milestone set by the government. It was initially set for FY25. First, covid disruptions pushed it back by a few years, then the downward revision in nominal GDP following the base year update, and now the rupee weakness.
When the rupee depreciates against the dollar, the same amount of economic output measured in rupees translates into smaller output in dollar terms. In FY26 and FY27, real GDP growth in rupee terms is 7.8% and 7.0%, respectively. However, growth in current dollar prices turns out to be roughly half, at just 4.0% and 3.9%, respectively.
Moreover, between April and October, India’s GDP in current dollar terms has been revised down by $93 billion in FY27 and $43-57 billion in FY28-FY32, reflecting a weaker rupee.
As a result, the latest projections suggest that the economy will narrowly miss the $5 trillion target by about $4 billion in FY29. While the shortfall in FY29 is marginal, it highlights how currency movements can affect the timeline of ambitions set in dollar terms. If the rupee continues to depreciate rapidly, the gap could widen further.
Ranking race
After maintaining fifth rank for three years, India fell behind the UK to the sixth rank in FY26 precisely because of low nominal growth in dollar terms. This will continue in FY27 before India surpasses both the UK and Japan in FY28 to become the fourth-largest economy and Germany in FY32 to become the third-largest economy.
While the IMF has lowered its projections for India’s nominal GDP in dollar terms, its growth projections over the next five years are considerably more optimistic. On average, the IMF expects the growth to be 10.7% in FY28-FY32. For context, the growth was only 5.6% in the previous five-year period of FY23-FY27. Unless the rupee depreciation is arrested, or an appreciation is achieved, maintaining this trajectory could prove difficult.
While India is undoubtedly growing at a rapid pace and has shown resilience in the wake of the energy crisis so far, the weakness in the rupee despite strong growth has impacted its international standing. Either the real growth in the rupee needs to be stronger, or the rupee itself needs to be stronger, to achieve a higher ranking going ahead.