India weathered global storm better than its peers, says IMF

MF’s latest observations should put to rest the controversy about the June quarter GDP numbers lacking statistical integrity.

The Indian economy is expected to grow at 7% in 2026-27 and 2027-28, retaining its status as the world’s fastest-growing economy, the International Monetary Fund said on Tuesday. The latest IMF projections also suggest that India’s high growth run might outlast the waning of policy-induced cyclical tailwinds from income tax cuts and Goods and Services Tax rationalisation.

IMF also noted India’s achievements in carving out a way to negate the trade disruption in the global economy. (AFP)

This feat comes at a time when most countries in India’s cohort – energy importers and those outside the ongoing technology boom

IMF projection for India

“Global output is projected to expand at an average annual pace of 3.2 percent in 2028–31, a persistently lackluster performance compared with the pre-pandemic (2000–19) historical average of 3.7 percent. Relative to that in January 2026, the medium-term outlook has become increasingly uneven, with downgrades concentrated among economies directly affected by the conflict in the Middle East and energy-importing emerging market and developing economies elsewhere, excluding India. India stands out with 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”, the report adds.

IMF also noted India’s achievements in carving out a way to negate the trade disruption in the global economy.

“Tangible progress in trade arrangements could reduce trade costs, improve policy predictability, make trading relationships more sustainable, and support global activity. In this context, 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.

India’s praiseworthy economic performance and outlook however is the proverbial silver lining of the dark clouds surrounding the global economy. IMF notes that while global growth has so far not collapsed the larger story is deeply uneven with “rapidly narrowing margins of adjustment in the near term”. Continuing trade tensions, an unending war in West Asia and the energy shock which has followed continued to generate headwinds for the global economy. While this has been countered by some extent by the ongoing technology boom, the world economy is now divided into two camps.

“The interaction of these forces—geopolitics and technology—has produced a split global economy: Favourable terms of trade or technology-related exports and investment give some countries a cushion, whereas others face higher import bills and weaker demand”, IMF said.

“The medium-term growth outlook remains lackluster by historical standards and uneven across countries, in part reflecting varying degrees of AI preparedness and robustness of the energy mix. Risks are skewed to the downside. A prolonged stalemate or further escalation in the Middle East could keep energy and food prices elevated and volatile, revive inflationary pressures, worsen fiscal and external balances, and weigh on growth…A reassessment of AI-related profitability and productivity prospects could sharply reduce investment, trigger equity market corrections, and tighten financial conditions, with spillovers to economies integrated into technology supply chains and stakes in technology stocks”, the IMF report added.

To be sure, these adverse global economic conditions will inevitably pose downside risks to India’s macroeconomic performance as well. While the immediate challenge is rising inflation -- retail inflation for 2026-27 is expected to stay at 5.2% according to RBI projections -- the effects will also translate into a higher fiscal burden if fuel prices are not increased in line with higher crude oil prices.

Another challenge is the withdrawal of foreign investors from Indian capital markets, driven by higher interest rates in advanced economies and the ongoing rally in AI related equities, which can potentially create external balance and negative wealth effect difficulties. It is important to remember that these challenges would be even more difficult to navigate had India’s growth story and fiscal stability not been what they are right now.