IMF pushes for more reforms as India's growth stays strong

New Delhi: The International Monetary Fund (IMF) called for structural reforms to support India's economic development, encouraging the government to build human capital, boost female labour force participation, maintain its public investment momentum, and strengthen the business environment.

It also reclassified India's de facto exchange-rate regime as 'crawl-like arrangement', shifting it from the 'stabilised' label assigned two years ago. A crawling peg makes small, gradual shifts in a currency's value to account for inflation differences between a country and its trading partner, according to an IMF publication. The rupee had hit a record low of 89.49 against the dollar last week.

In its Article IV consultation report released on Wednesday, the IMF noted that deeper trade integration would strengthen India's competitiveness and attract more foreign investment, while greater focus on R&D and innovation would support productivity-led growth. Advancing the green transition, supported by expanded access to concessional financing, was also highlighted as key to ensuring sustainable and resilient growth. Acknowledging ongoing progress, the board said further improvements in data quality would be valuable.


"India's ambition to become an advanced economy can be supported by advancing comprehensive structural reforms that enable higher potential growth," it said.

The report acknowledged India's strong economic performance and resilience, which has benefited from sound macroeconomic policies and reforms, and also welcomed the recent labour market reforms.

Despite global headwinds, India's economic growth is expected to remain strong due to favourable domestic conditions. Assuming prolonged 50% US tariffs, the IMF expects India's gross domestic product (GDP) to grow by 6.6% in FY26 and 6.2% in FY27. Inflation is projected to decline to 2.8% this fiscal before rising to 4% next year.
However, the goods and services tax (GST) reform and lower effective rates are expected to cushion the impact of tariffs, the IMF noted.

"The imposition of the 50% US tariffs in August will weigh on the outlook, but the magnitude is expected to remain manageable as India has relatively limited exposure to merchandise exports," it said.

In FY25, the US accounted for 19.8% of India's exports and 6.3% of imports.

The IMF noted that the Indian economy has continued to perform well, with GDP growing 7.8% in the first quarter of FY26, following 6.5% expansion in FY25.
The IMF backed India's fiscal consolidation plans but cautioned that meeting deficit targets will require strict spending control and close monitoring of the impact of GST and income-tax cuts.

It recommended targeted and temporary tariff relief and advised that fiscal consolidation in FY27 be aligned with tariff-driven growth effects. Over the medium term, they called for rebuilding fiscal buffers through stronger revenue mobilisation and better-targeted spending, alongside a review of medium-term debt goals after the upcoming GDP rebasing.

On monetary policy, the report supported the Reserve Bank of India's (RBI) data-driven approach and said if tariffs remain elevated and inflation stays benign, there may be room for further easing.