New Delhi: The International Monetary Fund (IMF) has maintained its Indian growth forecast unchanged at 6.5% for FY25 and FY26 in an update to its World Economic Outlook released on Friday.
However, in its latest quarterly update, the IMF said India's economic growth has slowed more than expected.
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"Growth in India also slowed more than expected, led by a sharper-than-expected deceleration in industrial activity," the IMF said in its latest update.
On a calendar year basis, India's growth projections are 6.8% for 2025 and 6.5% for 2026, it added.
India’s gross domestic product (GDP) grew in the September quarter at 5.4%, its slowest in nearly two years, according to data released by the ministry of statistics and programme implementation (MoSPI) in November.
Gross value added (GVA), which measures the total value of goods and services produced in an economy, grew by 5.6% in the September quarter, down from 7.7% in the same period last year. GVA growth in the first quarter was 6.8%.
On the expenditure side, private final consumption expenditure (PFCE), a proxy for private consumption, stood at 6% annually in the September quarter, down from a seven-quarter high growth of 7.4% in the preceding first quarter but above the 2.6% growth registered a year earlier.
To be sure, India remains one of the world’s fastest-growing major economies.
The Union finance ministry expects a rebound in the second half of 2024-25 driven by stronger rural demand and increased government spending.
The first advance estimate put out by the government earlier this month pegged GDP growth at 6.4% for FY25.
That would be the slowest pace of growth in four years since the pandemic in FY21, when growth contracted 5.8%.
The advance estimate is also lower than the finance ministry’s and central bank’s already-tepid forecasts for FY25, and follows the slowest quarterly growth in two years in the July-September 2024 quarter.
The Reserve Bank of India (RBI) also revised its growth forecast for FY25 to 6.6% from its earlier outlook of 7.2%.
According to the latest IMF forecast, the world economy is expected to grow 3.3% in CY25 (calendar year 2025), up from its earlier estimate of 3.2%.
For India, the IMF presents data and projections on a fiscal year (FY) basis, while data for other countries are presented on a calendar year (CY) basis.
In CY26, the IMF expects the world economy to grow at 3.3%. The US economy is expected to grow at 2.7% in CY25, and 2.1% in CY26, and China is expected to grow at 4.6% in CY25 and 4.5% in CY26.
"This reflects a decline in oil prices driven by weak Chinese demand and strong supply from countries outside of OPEC+ (Organization of the Petroleum Exporting Countries plus selected nonmember countries, including Russia), partly offset by increases in gas prices as a result of colder-than-expected weather and supply disruptions, including the ongoing conflict in the Middle East and outages in gas fields," the IMF report said.
"Non-fuel commodity prices are expected to increase by 2.5% in 2025, on account of upward revisions to food and beverage prices relative to the October 2024 world economic outlook, driven by bad weather affecting large producers," it added.
The IMF expects monetary policy rates of major central banks to continue to decline, though at different paces, reflecting variations in growth and inflation outlooks.
The RBI kept the benchmark repo rate steady at 6.5% in December, maintaining the level it last increased to in February 2023.
"Global growth is expected to remain stable, albeit lacklustre," the IMF report said. “The overall picture, however, hides divergent paths across economies and a precarious global growth profile.”
Meanwhile, the World Economic Situation and Prospects (WESP) 2025 report, released by the UN in early January, reveals that global economic growth has stagnated, remaining below the pre-pandemic annual average of 3.2%, despite weathering a series of interconnected shocks.
The report, prepared by the UN Department of Economic and Social Affairs, underscores the persistent challenges of weak investment, sluggish productivity, and high debt levels, which continue to weigh on global economic performance.
“Q2 growth was an aberration rather than a trend. FY25 growth is likely to be slightly revised upwards from 6.4%, as Q3 and Q4 growth should improve due to increased capital expenditure by both states and central governments, better trade numbers, and the impact of the depreciated exchange rate, which discourages imports," said Bhanumurthy N.R., director, Madras School of Economics.
"The Rupee has fallen against the US Dollar and those factors will start reflecting in the trade component, leading to lower imports and higher exports (in value terms). Additionally, we are seeing signs of a revival in private investment. With all three engines of growth picking up in Q3 and Q4, the 6.4% figure should be improved upon,” he said.
He added that the US sanctions on Russian oil and the subsequent rise in oil prices are likely to impact the Indian economy in Q1, FY26.
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