In a recent address, International Monetary Fund (IMF) Asia-Pacific Department Director Krishna Srinivasan emphasised that India must intensify efforts across several fronts domestic demand, investment, innovation, trade liberalisation, and deeper global integration if it is to sustain high growth and achieve its long-term development aspiration of becoming a “Viksit Bharat”.
Current Growth Forecasts and Background
The IMF forecasts India’s GDP growth at about 6.6% in 2025, easing to 6.2% in 2026. Despite this moderation, India continues to be the fastest-growing major economy among emerging markets. Srinivasan noted that while India’s fundamentals remain strong with inflation easing, the fiscal deficit under control, and robust consumption supporting growth the government must accelerate reforms to achieve its longer-term target of around 8% growth.
For the Asia-Pacific region as a whole, the IMF expects growth of 4.5% in 2025, slowing to 4.1% in 2026. The region is projected to contribute around 60% of global growth over this period.
Key Areas for Action
1. Boosting Domestic Demand
Srinivasan stressed the need for stronger domestic demand, noting that it has not rebounded as expected in the post-pandemic period, posing a structural drag. For India, structural reforms like the Goods and Services Tax (GST) rollout and simplification are already facilitating increased consumption and aggregate demand. “The GST reforms go in that direction, which will provide lift to … consumption,” he said.
2. Structural Reforms and Business Environment
To reach its 8% growth target, India will need to deepen structural reforms, Srinivasan said. This includes labour law flexibilisation, improved regulation, simpler procedures for business entry and expansion, and a greater role for private sector dynamism. He noted that existing regulations often hinder the private sector’s potential.
3. Trade Integration and Global Supply Chains
While strengthening local demand is important, the IMF cautioned against seeking self-sufficiency at the cost of global trade. Srinivasan argued that India can increase its integration into global supply chains, particularly through trade liberalisation and reforms. He suggested that a potential trade agreement with the US or reduced tariffs could yield “upside potential” for growth. He also warned that increasing external tariffs and rising trade tensions are hurting export-oriented sectors like garments, leather, and gems & jewellery.
4. Investment, Innovation & Productivity Growth
The IMF also underlined the need to move toward higher productivity by embracing new technologies, innovation, capital market development, efficient investment, and human capital enhancement. Countries were encouraged to “increase capital efficiency, ensuring every dollar invested has high returns,” and update trade agreements to include digital trade and services.
Risks and Challenges
The IMF highlighted several downside risks, including rising trade tensions—particularly US tariff moves—geopolitical uncertainty, tight financial conditions, and unresolved structural weaknesses such as demographic ageing and low productivity in some Asia-Pacific economies.
For India, despite strong growth momentum, the slight moderation projected for 2026 reflects potential headwinds from higher tariffs and external shocks.
Policy Implications
For India: The IMF’s message is clear: maintain domestic demand via consumption-driven growth while fast-tracking structural reforms particularly in labour, regulation, and business environment and building deeper global trade links and supply chain integration.
For investors/industry: The environment remains conducive, but policy implementation will be critical. Sectors that benefit from trade liberalisation, global connectivity, high-value manufacturing, and digital innovation are well-positioned to take advantage.
For the government: The challenge lies in ensuring macroeconomic stability (inflation, fiscal deficit) while accelerating reform and opening up the economy. The vision of India as a developed economy by 2047 demands consistent growth of 8% or more, supported by productivity gains and deeper global integration.
Conclusion
Even amid uncertainty from geopolitical tensions and volatile trade dynamics, India remains one of the world’s most dynamic economies. The IMF’s forecast reinforces India’s strengths but cautions that sustained growth is not guaranteed. As Krishna Srinivasan stressed, India must “fire on all cylinders” to reach and sustain growth rates of 8% or more and achieve its 2047 vision under the “Viksit Bharat” mission.
This will require a coordinated effort across the economy strengthening domestic demand, accelerating reforms in taxation, labour and regulation, and proactively integrating into global supply chains and trade networks. India must strike a balance between self-reliance and global connectivity, fostering an environment that encourages private enterprise, innovation, infrastructure development, and human capital growth. Though the challenges are considerable, the rewards higher incomes, more jobs, technological advancement, and stronger global economic leadership are within reach if India aligns its reforms, growth drivers, and trade opportunities effectively.
