The International Monetary Fund (IMF) Executive Board has completed its 2024 Article IV consultation with India, highlighting the country's robust economic growth and fiscal consolidation efforts. The consultation concluded that India's GDP grew by 6 percent year-on-year in the first half of the 2024/25 fiscal year, despite recent moderation. Inflation has decreased within a manageable range, although food prices have shown some volatility.
The IMF expects India's real GDP to grow at 6.5 percent for both 2024/25 and 2025/26, driven by strong private consumption supported by macroeconomic and financial stability. "Headline inflation is expected to converge to target as food price shocks wane," according to the report. The current account deficit is projected to widen slightly but remain moderate at -1.3 percent of GDP in 2025/26.
However, the IMF warns of downside risks to India's economic outlook, including potential impacts from geoeconomic fragmentation and regional conflicts that could lead to oil price volatility. Domestically, weaker-than-expected recovery in private consumption and investment or adverse weather conditions affecting agriculture could pose challenges.
Executive Directors praised India's prudent macroeconomic policies and reforms for maintaining resilience and making it the fastest-growing major economy once again. They emphasized the importance of continued appropriate policies amid global headwinds and domestic demand challenges. "India’s strong economic performance provides an opportunity to advance critical and challenging structural reforms," they noted.
Directors welcomed India's commitment to fiscal prudence and recommended continued fiscal consolidation over the medium term. They suggested focusing on domestic revenue mobilization and rationalizing current expenditures to create space for infrastructure and health spending.
The Reserve Bank of India's monetary policy was commended for keeping inflation within target bands, with Directors suggesting opportunities may arise for gradual policy rate reductions. They stressed that monetary policy should remain data-dependent and well communicated.
Regarding financial stability, Directors encouraged further strengthening of financial resilience amid vulnerabilities from interconnectedness among nonbank financial institutions, banks, and markets. They also recommended aligning India’s financial sector regulation framework with international standards.
Structural reforms were highlighted as crucial for job creation, investment stimulation, and potential growth enhancement. Directors called for labor market reforms, human capital strengthening, increased female workforce participation, stable policy frameworks for boosting private investment and FDI, governance reforms, trade integration measures including tariff reductions, climate policy frameworks aimed at net zero emissions by 2070, and improvements in macroeconomic statistics quality.