Relevance (UPSC): GS-III Indian Economy—Growth, External Sector, Monetary Policy

Context (Oct 2025). In its latest World Economic Outlook, the International Monetary Fund nudged FY26 growth for India up to 6.6%, but trimmed FY27 to about 6.2%—a 20 bps cut versus earlier guidance. The IMF cites strong domestic demand now, but flags global trade frictions and policy uncertainty ahead. 

Why the IMF lowered the growth projection

• External headwinds: higher import tariffs in major markets, softer external demand, and tighter global financial conditions could slow exports and private capex.
  
• Domestic story still firm (near term): consumption and public investment kept momentum strong, supporting the FY26 upgrade.
  

What this means in simple terms

• A headline “cut” refers mainly to FY27, not the coming year. Growth stays among the fastest globally, but could cool as external drags bite.
  
• Policy mix matters: if inflation stays contained and reforms keep supply chains efficient, India can cushion the slowdown and protect jobs and incomes.
  
• Budget & macro signals: watch capex quality, deficit glide path, and current-account dynamics as oil and shipping costs move.
  

Cushioning growth: 

• Hold the inflation anchor while easing bottlenecks in food, fuel and logistics to protect real incomes (Monetary Policy Committee + supply-side action).
  
• De-risk exports: diversify markets/products; use trade facilitation, standards and faster refunds to lift competitiveness.
  
• Crowd-in private capex: predictable rules, faster approvals, and deepening of Production Linked Incentive supply chains.
  
• Skills & diffusion: apprenticeships, cluster tech-upgrades, and small-firm credit via the Account Aggregator framework.
  
• Green reliability: more renewable round-the-clock contracts to lower energy costs and volatility.
  

Key terms 

Basis points (bps) = hundredths of a percent; WEO = IMF’s twice-yearly global outlook; Real GDP growth = inflation-adjusted output; External demand = foreign buyers’ appetite for our goods/services.

Exam hook

Takeaways:

1. IMF raised FY26 but trimmed FY27—India remains a growth out-performer with medium-term risks from trade frictions.
   
2. Domestic reforms and low inflation can offset weaker exports.
   
3. Focus on export de-risking, capex quality, skills, and green power to keep growth jobs-rich.
   

UPSC Prelims question
Q. With reference to IMF assessments of India, consider the following:

1. IMF’s World Economic Outlook often presents India’s projections on a fiscal-year basis in footnotes.
   
2. A 20 bps change equals 0.2 percentage point.
   
3. The latest WEO (Oct 2025) raised FY26 growth and reduced FY27 growth for India.
   Which of the statements given above are correct?
   (a) 1 and 2 only (b) 2 and 3 only (c) 1 and 3 only (d) 1, 2 and 3
   Answer: (d).
   

One-line wrap: Near-term upgrade, outer-year trim—keep inflation low, exports diverse and investments steady to turn India’s growth into durable, job-rich momentum.