IMF Raises India’s FY26 Growth Forecast to 6.6%, Flags Risks from Tariffs and Rising Debt

India’s economy continues to defy expectations, expanding at a robust 7.8% in the first quarter of FY26 (April–June), driven primarily by strong private consumption. This growth keeps India at the forefront as the world’s fastest-growing major economy, despite rising concerns over a cloudy export outlook following steep 50% tariffs imposed by the United States.

Strong Q1 Growth Supports Upward Revision

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The International Monetary Fund (IMF) has revised India’s growth forecast for FY26 upward by 0.2 percentage points, to 6.6%, citing the momentum carried over from the strong first-quarter performance. According to the IMF’s latest World Economic Outlook report, the initial quarter’s robust expansion more than offsets the dampening effect of increased U.S. tariffs on Indian exports since July 2025.

However, the IMF remains cautious about the longer-term outlook. For FY27, it has slightly reduced India’s growth projection by 0.2 percentage points to 6.2%, highlighting that elevated tariffs, rising debt, and external uncertainties may weigh on economic activity in the coming year.

IMF Flags Risks from Tariffs and Debt

The IMF’s assessment aligns with a broader trend of moderating growth in emerging markets. It projects that growth in emerging and developing economies will decline gradually, from 4.3% in 2024 to 4.2% in 2025 and further to 4% in 2026. While some countries have shown resilience due to domestic factors, the overall outlook is fragile amid escalating trade tensions and policy uncertainties.

Higher U.S. tariffs are particularly challenging, curbing external demand for export-led economies and creating a climate of uncertainty for investors. The IMF warns that markets may be underestimating the potential risks posed by rising trade protectionism and increasing public and private debt levels in several key markets, including India.

Global Outlook Weakens Amid Trade Tensions

The World Bank's most recent forecasts also demonstrate India's economic resiliency. The World Bank upped its FY26 GDP growth forecast for India to 6.5% from 6.3%, while lowering its FY27 outlook marginally to 6.3% owing to U.S. tariffs. Both organisations emphasise that, despite foreign challenges, India's growth story is still being supported by strong domestic demand, encouraging investment patterns, and supportive policies.

Conclusion

Even while India's economy continues to grow at the quickest rate among major economies, the IMF study emphasises the need for caution in light of increased U.S. tariffs, debt levels, and international concerns. Maintaining growth will require striking a balance between methods to reduce external threats and robust domestic demand, making sure that the economic momentum lasts throughout the upcoming fiscal year.