India’s economic outlook has received a positive boost from global institutions. The International Monetary Fund has revised upward India’s growth forecast for the financial year 2025-26, reflecting strong economic momentum, stable domestic demand, and improving inflation trends, even as global uncertainties continue.
Why in News?
IMF raised India’s GDP growth forecast for FY 2025-26 to 7.3%. The revision reflects strong economic momentum and easing inflation pressures.
IMF’s Revised Growth Forecast for India
- The International Monetary Fund has increased India’s economic growth projection for FY 2025-26 by 0.7 percentage points to 7.3 percent.
- This upward revision, announced in the World Economic Outlook update, is attributed to strong performance in the fourth quarter of the current fiscal year.
- The IMF noted that resilient domestic demand, steady investment activity, and supportive macroeconomic policies have strengthened India’s growth trajectory.
- Even with a projected moderation to 6.4 percent growth in FY 2026–27, India continues to stand out as one of the fastest-growing major economies globally.
India’s Role Among Emerging Economies
- According to the IMF, India remains a key driver of growth among emerging market and developing economies.
- While growth is expected to slow slightly in FY 2026-27, India’s economic fundamentals remain strong compared to peers.
- Structural reforms, expanding digital infrastructure, and sustained public investment continue to support medium-term prospects.
- The IMF highlighted that India’s scale, demographic advantage, and expanding technology ecosystem position it as a stabilising force for global growth, particularly at a time when several economies are facing slowdown risks and financial volatility.
Global Growth, Inflation and AI Risks
- The IMF projected global economic growth at 3.3 percent in 2026, supported by easing trade tensions, accommodative financial conditions, and rising investment in technology, especially artificial intelligence.
- For India, inflation is expected to return close to target levels after a sharp decline in 2025, mainly due to subdued food prices.
- However, the IMF cautioned that rapid AI-driven productivity gains could eventually reduce investment demand and tighten global financial conditions, potentially creating spillover risks for emerging economies like India.
International Monetary Fund (IMF) – Overview
- Full Form: International Monetary Fund
- Established: July 1944 (Bretton Woods Conference); formally constituted on 27 December 1945
- Headquarters: Washington, D.C., USA
- Members: 191 countries (Liechtenstein became 191st member in 2024)
- Purpose: Promote international monetary cooperation, financial stability, and global economic growth
History
- Great Depression & WWII: Global trade disruption and currency instability highlighted the need for an international monetary system
- Bretton Woods Conference (1944): 44 nations created IMF and World Bank (the “Bretton Woods twins”)
- Financial Operations: Began on 1 March 1947
Objectives
- Promote global monetary cooperation
- Foster economic growth and trade
- Ensure exchange rate stability
- Provide financial assistance to countries in crisis
- Discourage policies that could hinder global prosperity
Functions
Financial Assistance: Loans to countries in economic crises (not project-based)
Lending instruments include,
- Stand-By Arrangement (SBA)
- Extended Fund Facility (EFF)
- Rapid Credit Facility (RCF)
- Flexible Credit Line (FCL)
- Precautionary and Liquidity Line (PLL)
- Extended Credit Facility (ECF)
Policy Advice & Surveillance: Monitors economic policies, identifies risks, recommends adjustments
Capacity Development: Provides technical assistance and training to improve governance, monetary policies, and legal frameworks
Governance Structure
- Board of Governors: Highest decision-making body (Finance Minister of India = Governor; RBI Governor = Alternate)
- International Monetary and Financial Committee (IMFC): Advises on global monetary and financial system
- Executive Board: Manages day-to-day operations under the Managing Director
- Managing Director: Head of IMF staff and Executive Board; current MD – Kristalina Georgieva (since 2019, reappointed 2024)
Quota System & Special Drawing Rights (SDRs)
- Quota System: Determines financial contribution, voting power, and access to IMF resources
- Calculated using: GDP (50%), trade openness (30%), economic variability (15%), international reserves (5%)
- SDRs: International reserve asset created in 1969
- Not a currency; value based on a basket of USD, Euro, Yuan, Yen, GBP
- Provides liquidity and boosts reserves without debt
- Major allocation in 2021 to support COVID-19 recovery
Reports Published by IMF
- World Economic Outlook (WEO): Global economic trends, forecasts; published April & October
- Global Financial Stability Report (GFSR): Assesses financial markets and stability
- Fiscal Monitor Report: Public finance developments; published twice a year
- External Sector Report: Evaluates global external developments
India and IMF
- Founding member of IMF
- Financial assistance: Received during 1980s–1990s balance of payments crises
- Since 1993, India has not taken IMF loans
- India is now a net creditor with quota: 13,114.4 million SDRs (~USD 18.2 billion), voting share 2.63%
Question
Q.. IMF has projected India’s GDP growth for FY 2025-26 at,
A. 6.4%
B. 6.8%
C. 7.0%
D. 7.3%