IMF raises India's growth forecast to 7% but warns of a fragile world economy

The International Monetary Fund has raised its forecast for India’s economic growth to 7% for this financial year, reversing a cut it made in July, even as it warned that the world economy’s resilience is “becoming increasingly fragile and more uneven”.

In its World Economic Outlook released on Tuesday, the Fund projected growth of 7% in 2026-27, up from the 6.4% it forecast three months ago. It also lifted its estimate for 2027-28 to 7%, from 6.7%. In July the IMF had trimmed its outlook on worries that higher energy prices would drag on activity.

“India remains among the fastest-growing major economies, with growth in 2026 projected at 7.0 per cent,” the report said. It pointed to “stronger-than-expected momentum, supported by resilient domestic demand and robust services activity”. India’s economy grew 7.8% in the April-June quarter.

Close to other forecasts

The upgrade brings the IMF closer to other forecasters. The Reserve Bank of India, which raised its repo rate last week, expects 7.1% growth this year, as does the World Bank. The Asian Development Bank projects 7%.

The Fund said India “stands out with upward revisions” at a time when several large economies remain subdued, and cited demographics, a large domestic market and structural reforms as signs of “growing evidence of stronger growth potential”.

It expects consumer inflation in India to average 5% this year, up from 2% in 2025-26, before easing to 4.4% next year. That is a little below the RBI’s 5.2% projection. Retail inflation rose to 5.54% in September, driven by food prices. The current account deficit is projected to widen to 1.5% of GDP this year from 0.7%.

Oil, war and AI

The global picture is less bright. The IMF sees world growth at 3.1% in 2026 and 3.4% in 2027, and global inflation at 4.7% this year, pushed up by energy and food prices. “Risks are skewed to the downside,” the report said.

“Headwinds from a prolonged war and persistent geopolitical tensions could revive inflationary pressures,” it warned. In a downside scenario where crude stays above $130 a barrel through the first quarter of 2027, world growth next year would be 0.5 percentage points lower. Energy importers such as India, and low-income countries, would be hit hardest.

The Fund also flagged the risk of a sharp correction in artificial intelligence investment, which it said could cut global output by 1.1% by 2028. “The current technology tailwind could stop abruptly,” the report said.

IMF Managing Director Kristalina Georgieva put it more bluntly at a Bretton Woods Committee event. “We now have an economy that is standing on one leg, the AI leg,” she said.

For India, higher oil prices remain the main threat because the country relies heavily on imported crude. The IMF raised its oil price assumption for 2026, and Brent has traded above $100 a barrel this week after attacks in the Gulf.