India’s Economic Growth Outlook: 7 strong IMF Insights as Global Risks and AI Reshape Growth
India’s economic growth outlook has turned increasingly positive as the International Monetary Fund (IMF) gives a clearer look at where in the world growth momentum may be building and where risk is growing as global economies navigate through a period defined by geopolitical instability, changes in trade policy and sudden advances in technology. The International Monetary Fund (IMF) has continued to raise its growth projection of India, and at the same time, projected a cautiously optimistic tone for the global economy in the latest World Economic Outlook on January 19.
India Economic Growth Outlook Gets a Stronger IMF Endorsement
India has been the beneficiary of one of the biggest revisions in growth in recent months, affirmed by the IMF, which now forecasts India to grow at 7.3% in FY26, up a significant 0.7 percentage point upward revision from its October estimate. The upgrade followed stronger-than-expected economic performance in the third quarter and solid momentum going into the final period of the fiscal year.
Growth projections for the following years remain robust. The IMF forecasts India’s economy to grow by 6.4 per cent in FY27, a shade above its previous estimate of 6.2, before moderating to around 6.4 per cent in FY28 as temporary support and favourable base effects begin to fade. On a calendar-year basis, India is expected to grow 6.3 percent in 2026 and 6.5 percent in 2027, which would leave it firmly among the fastest-growing major economies in the world.
This optimism is fairly consistent with the assessment of the Indian government itself. In its initial advance estimates issued on January 6, New Delhi had put FY26 growth at 7.4 per cent, highlighting the ‘resilience’ of domestic demand, in terms of consumption and investment.
World Bank Echoes Confidence in India’s Economic Growth Outlook
The IMF is not the only institution revising its India outlook upward. The World Bank has also lifted its FY26 growth forecast to 7.2 per cent, and expects a growth of about 6.5 per cent in the out years. Both multilateral organizations note high domestic consumption, continued public investment and a recovery in private-sector confidence as the main factors underpinning India’s growth.
Cumulatively, these revisions reinforce India as a relative bright spot when many of the world’s largest economies are struggling with slowing growth, high debt levels and policy uncertainty
Global Growth Holds Steady Despite Crosscurrents
Outside India, the IMF has proved a tad more optimistic about the future of the global economy. It is now projecting global growth of 3.3 percent for 2026, an increase from its October projection of 3.1 percent, which is the pace it expects to continue in 2025. This growth is anticipated to slow slightly to 3.2 per cent by 2027.
According to the Fund, this steady headline performance masks a complex balancing act. While shifting trade policies, geopolitical tensions, and high public debt are being countered by robust investment in technology, supportive fiscal and monetary policies, and the high adaptability of the private sector.
Investment Momentum Fueled by Technology and AI
And a crucial factor that emerges from the IMF’s review is the outsized importance of technology investment, particularly in artificial intelligence, in determining near-term global growth. Here in the United States, investment in the information technology industry has jumped to levels not seen since 2001, lifting spending on other business services and creating good effects for other hot spots, particularly Asia.
The IMF sees similarities with the dot-com era, but says market valuations today look less speculative than they did two decades ago. Still, it warns that the sharp rise of AI has become a double-edged sword for the world economy.
On the plus-side, if AI is more widely adopted, it would increase global productivity while adding as much as 0.3 percentage points to global economic activity in the medium term. This would help counter demographic pressures and productivity slowdowns in many advanced economies.
Under the Optimism, Enormous AI Risks Have Matured
For all the promise, if the IMIf major AI firms fail to justify their lofty valuations or deliver tangible productivity improvements, investor sentiment could reverse sharply. Under that downside scenario, global growth would decline by up to 0.4 percentage points as financial market corrections and a fall in investment take hold.
This risk has been fuelled by wider uncertainties, such as geopolitical shocks, changing trade tensions and elevated public debt levels in both advanced and developing economies. The Fund emphasizes that while AI may be transformative, it also magnifies the impact of mispricing and policy mistakes.
Tame Inflation, But Challenges for Policy Makers Remain
The IMF also projects that world inflation will remain on a slow downward trajectory, declining to 3.8 percent in 2026 and to 3.4 percent by 2027. But it warns that inflation may be slower to return to target in the United States, complicating the path back for monetary policy tightening.
Globally, reduced inflation and calm financial conditions, to the extent they would be sustained, could offer additional space for action in emerging markets like India, but external shocks are still a significant risk.
Policy Imperatives for Sustained Growth
With such lopsided risks, the IMF challenged policymakers to remain vigilant. Priorities include rebuilding fiscal reserves, keeping price and financial stability, minimizing policy uncertainty and pressing on with structural reforms. For those countries that are experiencing strong growth momentum to begin with (like India itself), the thrust should primarily be towards capitalizing on this window of opportunity to shore up their fundamentals rather than merely relying on cyclical tailwinds.
The Road Ahead
Underlying the IMF’s higher forecasts is a vote of confidence in India’s economic resilience at a time when global economies are in flux. While the global economy seems to be doing all right, tech opportunity and financial risk are a delicate balancing act. India, however, will need not just conducive global conditions but also sensible policy making and the management of an increasingly complicated world if it hopes to maintain growth.
