There is both good and bad news for the Indian economy from the International Monetary Fund. In its latest World Economic Outlook, the IMF has revised India’s GDP growth forecast for 2025-26 upwards to 7.3 percent—a hefty 0.7 percentage points higher than its October 2025 estimate—citing better-than-expected third and fourth quarters. The top takeaway from the revision—just a shade lower than the government’s own estimate of 7.4 percent—is that India has weathered the tough US tariffs better than expected to retain its status as the world’s fastest-growing large economy.
The downside is that the IMF has projected a slowdown in 2026-27, forecasting growth to drop to 6.4 percent as “cyclical and temporary factors wane”. The unabated geopolitical turmoil and a possible escalation in the trade wars are the external factors the global lender has factored in. The only consolation is that the predicted 2026-27 growth is still 20 basis points higher than IMF’s previous projection of 6.2 percent made last October.
Other red flags on the horizon must be heeded, too. Corporate performance has been underwhelming, with the October-December quarterly results showing single-digit growth despite the GST reforms. The combined net profits of 143 companies went up just 3.5 percent in the third quarter. These figures reflect low fresh investments and little appetite for business risk. Meanwhile, India again stood sixth on the just-released Asia Manufacturing Index, a private competitiveness survey of 11 Asian economies. Though India ranked high on the workforce and economy factors, it was almost at the bottom of the table on political risk and tax policy.
When the dots are joined, the shape of the year ahead looks challenging. The supply of cheaper crude oil, which kept inflation in check, has been squeezed by US sanctions. Increased tariff action would weigh heavy on our export performance. The IMF has also warned that the volatility may lead to a correction in global asset valuations, especially in technology-linked sectors, leading to more net capital outflows from developing markets like India. As hopes to sidestep the oncoming storm seem dim, the government must use this budget to herald the next generation of reforms and chart a path beyond.