Key Points
- IMF lowers India’s FY26 GDP growth forecast to 6.2%, down from 6.5% projected in January.
- Trade tensions and US tariffs cited as primary reasons for the downgrade.
- Despite the cut, India remains the fastest-growing major economy.
- Global growth outlook for 2025 also reduced sharply to 2.8%.
- China’s 2025 growth forecast slashed to 4% due to tariffs and domestic challenges.
- Private consumption, especially in rural India, seen as key growth driver.
- India’s inflation expected to ease to 4.2% in FY26.
New Delhi: The International Monetary Fund (IMF) has delivered a sobering update on the Indian economy, lowering its GDP growth forecast for the financial year 2025-26 to 6.2%. This is a 0.3 percentage point drop from its earlier estimate of 6.5% made in January, reflecting the growing impact of global trade tensions and uncertainty, particularly following sweeping US tariff hikes.
Why the Downgrade?
The IMF’s April 2025 World Economic Outlook attributes this downward revision to:
- Escalating trade conflicts, especially the US imposing a 26% tariff on Indian imports.
- A surge in global policy uncertainty, making economic planning more difficult.
- Spillover effects from new trade measures, which have disrupted global supply chains and sentiment.
India Still Leads Global Growth
Despite the downgrade, India is projected to remain the world’s fastest-growing major economy in 2025, outpacing both advanced and emerging market peers. The IMF highlights that India’s growth will be “relatively more stable,” buoyed by robust private consumption, particularly in rural areas.
Comparative Global Outlook
- Global GDP growth: Cut to 2.8% for 2025, down from 3.3% in January, marking a significant slowdown.
- China: 2025 growth forecast slashed to 4% (from 4.6%), as tariffs and a property sector crisis weigh on the economy.
- US: Growth outlook reduced to 1.8% for 2025, nearly a full percentage point lower than previous estimates, due to tariffs and weak consumer spending.
- Other major economies: Japan’s growth forecast lowered to 0.6% for 2025, with similar downgrades for Canada and the UK.
| Country/Economy | 2025 GDP Growth Forecast (April 2025) | Previous Forecast (Jan 2025) | Change |
|---|---|---|---|
| India | 6.2% | 6.5% | -0.3% |
| China | 4.0% | 4.6% | -0.6% |
| US | 1.8% | 2.7% | -0.9% |
| Global | 2.8% | 3.3% | -0.5% |
Inflation and Other Indicators
- India’s inflation: Projected to fall to 4.2% in FY26 and 4.1% in FY27, indicating some relief on the price front.
- Current account deficit: Expected at 0.9% of GDP in FY26 and 1.4% in FY27.
- Unemployment: Estimated to remain steady at 4.9%.
Tariffs: The Key Disruptor
The IMF’s report underscores that the unprecedented US tariff hikes described as the highest in a century are a major shock to global growth. While a 90-day pause is in effect for some tariffs, a baseline 10% tariff remains for most countries, with China facing rates up to 145%. India, too, is directly affected by a 26% US tariff on its exports, adding to the drag on growth.
Long-Term Outlook
While India’s near-term demographics remain favorable, the IMF warns that growth could slow further after 2050 as the country’s demographic dividend wanes. The IMF also cautions that persistent trade tensions could reduce world GDP by 0.6% by 2027 and up to 1% in the long term.
Despite global headwinds and tariff shocks, India’s economy is set to remain a bright spot in 2025, though at a slower pace than previously hoped.
