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IMF raises India GDP forecast to 6.4% as U.S. trade tensions ease, global outlook lifts - BusinessToday

IMF Boosts India's GDP Growth Projection to 6.4% Amid Easing Global Trade Tensions

In a significant update to its global economic outlook, the International Monetary Fund (IMF) has revised India's gross domestic product (GDP) growth forecast upward to 6.4% for the fiscal year 2025-26. This optimistic revision comes on the heels of easing trade tensions between the United States and major economies, coupled with an improved overall global economic sentiment. The IMF's latest World Economic Outlook report, released this week, highlights how these factors are creating a more favorable environment for emerging markets like India, allowing for stronger export performance and increased foreign investment inflows.

The adjustment marks a notable increase from the IMF's previous projection of 6.1% made just three months ago. Analysts attribute this upgrade to several interconnected developments on the international stage. Primarily, the de-escalation of trade disputes, particularly those involving the US and China, has reduced uncertainties that previously weighed on global supply chains. With tariffs being rolled back and diplomatic negotiations progressing, businesses worldwide are experiencing less disruption, which in turn benefits trade-dependent economies such as India. For instance, India's robust export sectors, including information technology services, pharmaceuticals, and textiles, stand to gain from smoother access to key markets.

Delving deeper into the IMF's rationale, the report emphasizes the role of a stabilizing global economy. Despite lingering challenges like inflationary pressures and geopolitical risks, the IMF notes that advanced economies are showing signs of resilience. The US economy, in particular, is projected to grow at a steady 2.3% in 2025, driven by consumer spending and technological advancements. This stability is expected to spill over to emerging markets through increased demand for goods and services. For India, this translates into higher remittances from its diaspora in the US and Europe, as well as greater foreign direct investment (FDI) in sectors like renewable energy and digital infrastructure.

India's domestic strengths are also a key factor in the IMF's positive assessment. The country has demonstrated remarkable economic resilience post the COVID-19 pandemic, with GDP growth averaging around 7% in recent years. Government initiatives such as the Production-Linked Incentive (PLI) scheme and infrastructure investments under the National Infrastructure Pipeline have bolstered manufacturing and job creation. The IMF praises India's fiscal prudence, noting that the government's efforts to maintain a deficit below 5% of GDP while investing in capital expenditure are paying dividends. Additionally, the Reserve Bank of India's (RBI) proactive monetary policy, including interest rate adjustments to curb inflation, has helped stabilize the rupee and attract portfolio investments.

However, the report is not without caveats. The IMF warns that India's growth trajectory could be vulnerable to external shocks, such as a resurgence in global energy prices or disruptions in commodity supplies due to ongoing conflicts in regions like the Middle East or Ukraine. Domestically, challenges like uneven monsoon patterns affecting agriculture and persistent unemployment in rural areas could temper the upside. To mitigate these risks, the IMF recommends continued reforms in labor markets, education, and healthcare to enhance productivity and inclusive growth.

Comparing this forecast with those from other institutions provides a broader perspective. The World Bank, in its latest update, pegs India's growth at 6.3% for the same period, slightly lower than the IMF's figure but still indicative of strong performance. Meanwhile, domestic agencies like the RBI have forecasted 6.5-6.7%, aligning closely with the IMF's view. Economists suggest that the convergence of these projections underscores India's position as a bright spot in a world grappling with slowdowns in Europe and potential recessions in parts of Asia.

The easing of US trade tensions deserves special mention, as it has been a pivotal driver. Over the past year, the Biden administration has pursued a strategy of "friend-shoring" – redirecting supply chains to allied nations – which has benefited India. Agreements like the US-India Initiative on Critical and Emerging Technology (iCET) have fostered collaborations in semiconductors, artificial intelligence, and clean energy. This shift away from over-reliance on China has opened doors for Indian firms, with companies like Tata Group and Reliance Industries expanding their global footprints. Export figures from the first half of 2025 already show a 12% year-on-year increase, largely attributed to these dynamics.

On the global front, the IMF has also upgraded its worldwide growth forecast to 3.2% for 2025, up from 3.0% previously. This lift is attributed to better-than-expected performances in major economies and a slowdown in inflation rates. For emerging and developing Asia, the projection stands at 4.8%, with India and China leading the pack. China's growth is estimated at 4.5%, but India's higher rate positions it as the fastest-growing major economy, a title it has held for several years.

Experts have weighed in on the implications of this forecast. Dr. Arvind Subramanian, former Chief Economic Advisor to the Government of India, commented that the IMF's revision validates the country's structural reforms, including the Goods and Services Tax (GST) and insolvency code, which have improved business efficiency. He emphasized the need for sustained investment in human capital to achieve even higher growth rates, potentially reaching 8% by the end of the decade.

From a sectoral viewpoint, the technology and services industries are expected to be the primary growth engines. India's IT sector, which contributes over 8% to GDP, is poised for expansion amid global digital transformation. The IMF report highlights how remote work trends and AI adoption are driving demand for Indian software services. Similarly, the manufacturing sector, buoyed by "Make in India" initiatives, could see accelerated growth if trade barriers continue to diminish.

Financial markets have reacted positively to the news. The BSE Sensex surged by 1.5% following the IMF announcement, reflecting investor confidence. Bond yields have softened, indicating expectations of stable interest rates. Foreign institutional investors (FIIs) have pumped in over $5 billion in the past month, targeting blue-chip stocks in banking and consumer goods.

Looking ahead, the IMF stresses the importance of multilateral cooperation to sustain this momentum. It calls for reforms in global trade rules under the World Trade Organization (WTO) to prevent future tensions. For India, leveraging its G20 presidency legacy could help in advocating for fair trade practices that benefit developing nations.

In conclusion, the IMF's upward revision of India's GDP forecast to 6.4% is a testament to the country's economic fortitude and the improving global landscape. As US trade tensions ease and international demand rebounds, India is well-positioned to capitalize on these opportunities. However, achieving this growth will require vigilant policy-making to address vulnerabilities and foster inclusive development. This forecast not only boosts morale but also sets a benchmark for India's ambition to become a $5 trillion economy by 2027. With strategic focus, the nation could exceed these expectations, solidifying its role as a global economic powerhouse.

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Read the Full Business Today Article at:
[ https://www.businesstoday.in/latest/economy/story/imf-raises-india-gdp-forecast-to-64-as-us-trade-tensions-ease-global-outlook-lifts-486925-2025-07-30 ]