IMF raises India FY25 GDP growth outlook to 6.8%

New Delhi: Anticipating increased economic activity in the current, ongoing fiscal, the International Monetary Fund (IMF) on Tuesday raised India's FY25 GDP growth forecast to 6.8% from its earlier forecast of 6.5%.

The IMF’s upward revision of FY25 GDP growth forecast comes after similar revisions were made by several others, including the World Bank, Asian Development Bank and S&P Global.

In its April edition of World Economic Outlook, the IMF said it expects India's FY26 (next fiscal) GDP growth at 6.5%. The IMF expects India to grow at 7.8% in FY24.

It is late optimism from the IMF, said N.R. Bhanumurthy, VC at Dr BR Ambedkar School of Economics University, Bangalore, adding that IMF doesn’t take many factors into considerations when it comes to the Indian economy.

“ I think RBI’s forecast of 7% growth (FY25) is more practical as it considers all major factors concerning the economy,” he said. “There are many downsides — high oil prices and geopolitical tensions — and upsides including the expectation of good monsoons which will have to be factored in. However, we expect growth to be around 7% in FY25.”

Last month, S&P Global raised India’s FY25 growth forecast to 6.8%, from 6.4% predicted in November, on the back of strong domestic demand and a pick-up in exports. The US rating agency expects GDP growth to moderate in FY25 after better-than-expected 7.6% growth in FY24. Meanwhile, the Asian Development Bank (ADB) has also recently raised India’s GDP forecast for FY25 to 7% from 6.7% projected earlier. Recently, the World Bank also revised its forecast for India’s GDP growth to 6.6% for FY25 from 6.4% predicted for the fiscal earlier.

Meanwhile, the IMF's baseline forecast for the world economy is that it will continue growing at 3.2% during CY2024 and CY2025, at the same pace as in CY2023, the agency said in its latest edition of the World Economic Outlook.

A slight acceleration for advanced economies where growth is expected to rise from 1.6% in 2023 to 1.7% in 2024 and 1.8% in 2025 will be offset by a modest slowdown in emerging market and developing economies from 4.3% in 2023 to 4.2% in both 2024 and 2025, it said, adding the forecast for global growth five years from now at 3.1% is at its lowest in decades.

The IMF presents India's economic data and predictions on a fiscal year basis while it uses calendar year for other economies.

The latest IMF World Economic Outlook said global economic activity remained surprisingly resilient through the global disinflation of 2022-23 and as global inflation descended from its mid-2022 peak, economic activity grew steadily, defying warnings of stagflation and global recession.

Growth in employment and incomes held steady, reflecting supportive demand developments including greater-than-expected government spending and household consumption, and a supply-side expansion amid, notably, an unanticipated boost to labour force participation, it said.

The unexpected economic resilience, despite significant central bank interest rate hikes aimed at restoring price stability, also reflects the ability of households in major advanced economies to draw on substantial savings accumulated during the pandemic, it added.

IMF’s April world economic outlook said that while risks to the global outlook are now broadly balanced, new price spikes stemming from geopolitical tensions, including those from the war in Ukraine and the conflict in Gaza and Israel, could, along with persistent core inflation where labour markets are still tight, raise interest rate expectations and reduce asset prices.

A divergence in disinflation speeds among major economies could also cause currency movements that put financial sectors under pressure. High interest rates could have greater cooling effects than envisaged as fixed-rate mortgages reset and households contend with high debt, causing financial stress, it said.

As the global economy approaches a soft landing, the near-term priority for central banks is to ensure that inflation touches down smoothly, by neither easing policies prematurely nor delaying too long, it added.

As things stand, India remains the world’s fastest-growing major economy. In December, the Reserve Bank of India (RBI) revised its growth forecast for the economy in FY24 to 7%, up from its previous projection of 6.5%. The revision was due to higher-than-anticipated growth in the first two quarters of the financial year.

Other international agencies have also raised India’s GDP growth forecast for FY24 following the higher-than-expected growth during the first two quarters of FY24.

Last month, S&P Global raised India’s FY25 growth forecast to 6.8% on the back of strong domestic demand and a pick-up in exports. The American rating agency, which last November projected India's FY25 GDP growth at 6.4%, expects it to moderate in the coming fiscal year after better-than-expected 7.6% growth in FY24.

Meanwhile, the Asian Development Bank (ADB) has also recently raised India’s GDP forecast for FY25 to 7% from 6.7% projected earlier.

Recently, the World Bank also revised its forecast for India’s GDP growth to 6.6% for FY25 from 6.4% predicted for the fiscal earlier.

Growth in investment and manufacturing on the back of the government's investment in infrastructure has pushed India’s economic growth in the past quarters.