IMF hails India’s economic resilience, flags need for fiscal rigour, reforms

New Delhi: The International Monetary Fund (IMF) on Wednesday lauded India’s “very strong economic performance and resilience”, urging the country to maintain fiscal discipline and accelerate structural reforms amid an increasingly uncertain global environment.

India’s post-pandemic recovery has remained firmly on track - growth reached 6.5% in FY25 and surged to 7.8% in the first quarter (April-June) of FY26, while retail inflation cooled drastically amid subdued food prices, the IMF's executive board noted in its 2025 bilateral consultation with the country.

Under Article IV of the IMF’s Articles of Agreement, the Fund conducts annual bilateral consultations with each member state.

The IMF highlighted the durability of the country’s financial and corporate sectors, supported by multi-year-low non-performing assets and healthy capital buffers. Fiscal consolidation has advanced, and the current account deficit remains contained, buoyed by resilient services exports, it said in a statement.

In its annual consultations, an IMF staff team visits a member country, gathers economic and financial data, and holds discussions with government officials to assess recent developments, policy priorities, and risks facing the economy. The IMF team's discussions with Indian officials took place in Bengaluru, Chennai, Mumbai, and New Delhi during 4–18 September. The report was completed on 6 November before being presented to the executive board for consideration on 21 November.

Reclassified exchange rate regime

However, in its Country Report that was released following the consultations, the IMF said it has reclassified India’s de facto exchange rate regime as a “crawl-like arrangement,” two years after previously describing the country’s foreign-exchange framework as a “stabilised arrangement".

“India’s de jure exchange rate arrangement is floating, and its de facto exchange rate arrangement is classified as a crawl-like arrangement. The classification of the de facto exchange rate arrangement is based on a statistical methodology that is implemented by staff evenhandedly across member countries,” it said.

A crawling peg involves small, gradual adjustments to a currency to reflect inflation gaps between a country and its trading partner, according to an IMF publication.

“The methodology follows a backward-looking statistical approach that relies on past exchange rate movement and historical data. Therefore, this classification does not imply statements or views on future or intended policies, nor does it imply a policy commitment on the part of the country authorities,” the report said.

“The period considered for a potential reclassification of the de facto arrangement is any six-month span beginning from the onset of a new trend, as observed since the arrangement was last classified in the most recent AREAER or Article IV staff report,” it added.

RBI's approach backed

On monetary policy, the IMF directors supported the Reserve Bank of India’s (RBI) data-driven approach, noting that persistently benign inflation could open space for further easing, and pressing for stronger monetary transmission and greater currency flexibility to help absorb external shocks.

The board said India’s financial system remains sound, but urged vigilance over risks in non-bank lenders, and recommended continued progress on financial reforms and stronger oversight.

The IMF Board report also cautioned that India’s path ahead is narrowing as global risks intensify.

Under a baseline scenario that assumes prolonged US tariffs of 50%, the IMF projects real GDP growth of 6.6% in FY26, moderating to 6.2% in FY27.

The recent overhaul of the goods and services tax, which included a lower effective rate, is expected to cushion some of the drag from tariffs, while keeping inflation well anchored, it added.

However, to secure India’s ambition of becoming an advanced economy, the directors stressed, progress on comprehensive reforms will be essential.

The IMF backed the government’s fiscal consolidation efforts, but cautioned that meeting this year’s deficit goal (of 4.4% of GDP) will demand strict spending discipline.

“While welcoming the recent simplification of the goods and service tax (GST), they (directors) called for careful monitoring of the fiscal impact of the reduction in GST and personal income tax rates. Directors also recommended that tariff relief measures should be targeted, transparent, and time-bound, and that the pace of fiscal consolidation in FY2026/27 should be conditional on the impact of tariffs on the output gap,” the IMF statement said.

“For the medium term, Directors stressed that fiscal buffers should be replenished by focusing on domestic revenue mobilisation, while also raising efficiency of expenditure, including through a more targeted social safety net,” it added.