NEW DELHI: The International Monetary Fund (IMF) on Tuesday raised its FY27 growth forecast for India to 7 per cent from 6.4 per cent estimated in July, citing stronger-than-expected momentum in domestic demand and services activity.
“India remains among the fastest-growing major economies, with growth in 2026 projected at 7.0 per cent. This reflects stronger-than-expected momentum, supported by resilient domestic demand and robust services activity,” it said in its latest World Economic Outlook.
The revision in growth forecasts by economic forecasters comes following unexpectedly strong growth of 7.8 per cent in the June quarter of 2026-27 (Q1FY27). Recently, the Reserve Bank of India (7.1 per cent), World Bank (7.1 per cent) and Asian Development Bank (7 per cent) also raised their growth forecasts for FY27. The IMF also raised its India forecast for FY28 to 7 per cent from 6.7 per cent estimated earlier.
“India stands out with upward revisions, reflecting sustained momentum and growing evidence of stronger growth potential supported by favorable demographic dynamics, a large and expanding domestic market, and continued structural reforms,” it added.
While raising its forecast for 2026 by 10 basis points to 3.1 per cent, the multilateral lending organisation said two major transformative forces — geopolitics and technology — are reshaping the global economy, with their short-term impact gradually coming into view and their longer-term impact still largely unknown.
“Headwinds from a prolonged war and persistent geopolitical tensions could revive inflationary pressures, strain fiscal and external positions, and hit energy-importing and low-income countries hardest. At the same time, the current technology tailwind could stop abruptly if expectations about AI-related profits and productivity gains are reassessed, weakening investment and tightening financial conditions,” it said.
The IMF advised policymakers to follow a two-pronged approach. “Contain the immediate risks from inflation, debt, and financial fragility while putting in place the infrastructure, skills, and competitive environment needed for technological transformation to translate into broader and more balanced growth, with the gains distributed more evenly across and within countries,” it added.
It cautioned that a more protracted war that kept crude oil prices above $130 through the first quarter of 2027 would cut global growth in 2027 by half a percentage point.
In another downside scenario, the IMF said a steep drop in AI investment could lead to a sharp fall in asset prices, ultimately cutting global GDP by 1.1 per cent by 2028.
“We now have an economy that is standing on one leg, the AI leg,” IMF Managing Director Kristalina Georgieva told a Bretton Woods Committee event. “What if it wobbles? What if there is disappointment and that leads to potentially a more difficult environment?”
The IMF emphasised similar risks in its separate Global Financial Stability Report, warning that policymakers needed to avoid “complacency” in guarding against a potential pullback in AI investment and stock valuations.
An ensuing AI market correction would feed back through the real economy, dragging down broader asset prices and overall demand through a reduction in the wealth effect, said Athanasios Vamvakidis, deputy director of the IMF’s Monetary and Capital Markets Department.
It would also lead to reduced trade, IMF chief economist Silvana Tenreyro said. Trade in AI goods grew 29 per cent between 2023 and 2025, more than triple the 8.3 per cent growth rate of global trade over the same period. Without AI trade, overall growth in trade would have been only 4.6 per cent, she said.
However, the IMF maintained that the potential upside should not be dismissed. “The constellation of accommodative financial conditions, robust private sector adjustment, and AI-related investment could carry activity through the war shock and begin to lift productivity,” it added.
Source: Business Standard
