India continues to drive global growth amid external headwinds: IMF

By R Anil Kumar

• IMF said it continues to project India’s economy to grow by 6.5 per cent in fiscal year 2026-27, maintaining the upward revision made in April. “We had projected growth at 6.5 per cent in fiscal year 2026-27, and that was a slight upgrade compared to what we had in January

Washington. India continues to be a major driver of global economic growth despite the economic impact of the Iran conflict and higher energy prices, the International Monetary Fund (IMF) said on June 25.

Addressing a regular IMF press briefing, Julie Kozack, Director of the IMF’s Communications Department, said India’s economy had remained resilient despite external headwinds, supported by robust domestic demand.

“What I can say is that despite the impact of the war and global headwinds from the global economy, or externally, India’s economy has been growing robustly, and it has been supported, particularly by very strong domestic demand within India,” Kozack said.

The IMF said it continues to project India’s economy to grow by 6.5 per cent in fiscal year 2026-27, maintaining the upward revision made in April.

“We had projected growth at 6.5 per cent in fiscal year 2026-27, and that was a slight upgrade compared to what we had in January. So, 6.5 per cent is still quite strong growth,” Kozack said.

She said the forecast reflected strong momentum carried over from last year and the reduction in US tariff rates, which helped cushion the impact of the global energy shock.

“It also reflects the reduction in the US tariff rate, which had been set at 50 per cent and then was reduced to 10 per cent, and that reduction in tariffs also partly offset the impact of the global energy shock on India,” she said.

Kozack said India’s economy had continued to outperform expectations during the first quarter of the calendar year.

“Right now, we see that there’s strong momentum that has continued in the first quarter of this calendar year. The economy in India had been growing in the first quarter at 7.8 per cent, and that was above what we had built into our projection for April for the first quarter,” she said.

“So, there is quite strong momentum still in India. So, it does still remain a growth engine for the global economy, despite the shock.”

Asked whether the conflict in the Middle East and disruptions around the Strait of Hormuz could hurt India’s energy-dependent economy, Kozack said the country had inevitably felt the impact of higher global energy prices.

“I think it’s clear that the energy shock has had an impact globally and no country has really been untouched by the global shock,” she said.

During the same briefing, Kozack said the IMF viewed the recent ceasefire in the Middle East and progress towards reopening the Strait of Hormuz as positive developments for the global economy. She noted that oil prices had retreated from their peak but remained around 10 per cent above pre-war levels, while some other commodity prices had also begun to ease.

The IMF is expected to provide updated global economic projections on July 8.

A RECAP OF IMF APRIL 2026 REPORT

IMF upgrades India’s FY27 growth forecast, even as war clouds global outlook.

Lower US tariffs and strong FY26 momentum drive India’s upgrade to 6.5 percent.

In a Nutshell

The IMF raised India’s FY27 growth forecast to 6.5% due to lower US tariffs and strong FY26 momentum, despite global risks from the West Asia conflict. India stands out as global growth is cut to 3.1% for 2026, with inflation and energy prices set to rise.

The International Monetary Fund (IMF) has raised India’s growth forecast for FY27 to 6.5 percent, as a sharp cut in US tariffs on Indian goods and a strong FY26 growth momentum are expected to offset the drag from the West Asian conflict. It was 6.4 percent in the earlier January update.

The IMF’s April 2026 World Economic Outlook positions India as one of the few resilient economies in a global outlook that is increasingly shadowed by the conflict in West Asia. India’s upgrade comes even as the IMF cuts its world growth estimate to 3.1 percent in 2026, from 3.4 percent earlier, and warns of significant downside risks ahead.

India stands out

The report has revised India’s growth for FY26 sharply upwards to 7.6 percent, “reflecting the better-than-expected outturn in the second and third quarters of the fiscal year and sustained strong momentum in the fourth quarter.” For FY28, the IMF projects growth holding steady at 6.5 percent.

The report mentions that the drivers are specific. A reduction in US tariffs on Indian goods, from 50 to 10 percent, has meaningfully improved the trade outlook, and the “carryover momentum” from a strong FY26 is expected to sustain activity into the next fiscal year. These positives, the IMF notes, are sufficient to offset the adverse spillovers from the ongoing war in West Asia.

How the West Asia war has changed forecasts

The broader global picture is considerably less comfortable. The IMF has replaced its traditional baseline with a “reference forecast” acknowledging that the outbreak of war in West Asia at the end of February 2026 has made standard projections difficult. Under this reference forecast, which assumes that the conflict remains limited in scope and fades by mid-2026, global growth is projected at 3.1 percent in 2026 and 3.2 percent in 2027, down from an estimated 3.4 percent in 2025 and well below the pre-pandemic historical average of 3.7 percent.

The IMF notes in the report that without the war, it would have revised global growth “upward” as the global economy was “performing better than expected”. Instead, energy commodity prices are now projected to rise 19 percent in 2026, with oil prices expected to increase 21.4 percent. The report also highlights that prices of natural gas are expected to be affected more than oil prices “because of the technical complexity of restarting production and the comparatively lower level of reserves to fall back on.”

Global headline inflation is forecast to climb to 4.4 percent in 2026, from 4.1 percent in 2025, before easing to 3.7 percent in 2027.

The upside

Yet, the IMF points to potential upsides as faster-than-expected AI productivity gains could lift global growth by up to 0.8 percentage points in the medium term, while progress in trade negotiations and structural reforms across major economies could add a further 0.6 percentage points to global output.

Downside scenarios

The IMF lays out two downside scenarios that illustrate how quickly conditions could deteriorate. In an “adverse scenario”, where oil prices jump 80 percent (starting Q2 2026 compared to Q1) and financial conditions tighten significantly, global growth drops to 2.5 percent in 2026 and inflation hits 5.4 percent.

In a “severe scenario” involving sustained damage to energy infrastructure, global growth falls to 1.3 percent in 2026 marking “a close call for a global recession” which is a growth rate below 2 percent. This threshold has been crossed only four times since 1980, most recently during the global financial crisis in 2008 and the Covid-19 pandemic.

The report notes that emerging markets that rely on commodity imports face a double blow of rising energy and food prices made worse by weakening currencies. It also states that the scale of the economic damage will depend entirely on the conflict’s duration and reach.