IMF increases India's GDP growth forecasts for FY25, FY26 to 6.5%

The International Monetary Fund (IMF) has increased its GDP growth estimate for India for 2024–25 by 20 basis points to 6.5 percent, but it is still below what Indian officials had predicted.

The multilateral agency lowered its growth forecast for 2023–24 to 6.5 percent, which is 20 basis points less than its initial estimate of 6.7 percent. A basis point is one tenth of a percentage point.

Similarly, the Fund increased its 2025–2026 growth estimate by 20 basis points, to 6.5 percent.

“Growth in India is projected to remain strong at 6.5 percent in both 2024 and 2025, with an upgrade from October of 0.2 percentage point for both years, reflecting resilience in domestic demand,” the IMF said in its World Economic Outlook report.

The upward growth revision is made ahead of the interim budget for 2024–25, when it is anticipated that the Indian finance minister will keep working to strengthen the country’s finances and chances for growth.

According to media reports, Union Finance Minister Nirmala Sitharaman wants to target a budget deficit of 5.3% of GDP in 2024–2025. Economists note that the budget figures assume nominal GDP growth of 10.5 percent for the upcoming year, which is higher than the initial advance estimate of 8.9 percent in 2023–2024 provided by the statistics ministry.

In the wake of the spectacular GDP data revealed in November 2023, which showed the Indian economy increased by 7.6 percent in July-September, the ministry has also projected real growth for 2023–2024 at 7.3 percent.

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The finance ministry stated in a study on January 29 that the Indian economy’s growth rate may be close to 7% in 2024–2025, despite the fact that the budget does not include a real GDP growth prediction.

“The strength of the domestic demand has driven the economy to a 7 percent plus growth rate in the last three years,” the Union Finance Ministry said in a report.

Similar remarks have been made by the RBI, albeit it has not updated its official projection for 2024–25 since it was last updated in October 2023. On February 8, when its Monetary Policy Committee releases the specifics of its interest rate decision, the central bank is anticipated to release a new prediction for the upcoming year.

The IMF gave India numerous thumbs up, but it merely increased its prediction for world growth through 2024.

“The clouds are beginning to part. The global economy begins the final descent toward a soft landing, with inflation declining steadily and growth holding up. But the pace of expansion remains slow, and turbulence may lie ahead,” the IMF’s chief economist Pierre-Olivier Gourinchas told the media.

China (+0.4%), the United States (+0.6%), and Russia (+1.5%) led the increased growth revisions for 2024. Europe is expected to grow more slowly this year than was previously anticipated.

Gourinchas went on to say that there are still unknowns and that “two-sided risks” now confront central banks. Initially, they have to make sure that interest rates are not lowered too soon, since that would reverse “hard-earned credibility gains and lead to a rebound in inflation”. Additionally, they need to “in time” normalize monetary policies.

According to the most recent projections from the IMF, consumer prices are expected to rise 5.8 percent in 2024 and 4.4 percent in 2025 following a 6.8 percent increase in 2023.