IMF Projects India’s Economy to Grow at 6.2% in 2025

General Studies Paper-3

Context: According to the April 2025 edition of the IMF’s World Economic Outlook, India will remain the fastest growing major economy over the next two years.

World Economic Outlook Report

• The World Economic Outlook (WEO) is the International Monetary Fund’s key report on global economic trends and policy challenges.
• Published twice a year it provides projections for the near and medium term, covering advanced, emerging, and developing economies.

Key highlights

• India’s Growth outlook: India is projected to remain the fastest-growing large economy and is expected to grow by 6.2 percent in 2025 and 6.3 percent in 2026.
• Global Growth outlook: The global economic growth will be much lower, at 2.8 percent in 2025 and 3.0 percent in 2026.
• Emerging Asia: The region is also expected to grow strongly, led by India, but faces downward revisions due to global trade disruptions.

Reasons for slowdown in world economy

• Tariff War 2.0: Since early 2025, new tariffs by the US on imports, coupled with retaliatory measures, have triggered a fresh wave of trade tensions.
• Slowing Consumer Confidence: As new tariffs increase costs and lower disposable incomes, consumer spending has weakened, especially in the US and Europe.
• Inflation: While headline inflation has cooled from its peak, core inflation remains sticky, particularly in services.
• Diminished Policy Space: High public debt and rising interest rates have limited the ability of governments to respond with countercyclical policies.
• Aging populations in countries like Japan, Germany, and China are reducing the available workforce, constraining long-term growth.

Reasons for India’s Resilience

• Domestic Demand: India’s growth remains largely driven by robust domestic consumption and investment, particularly in infrastructure and services.
• This has weakened global investor sentiment, triggered financial market volatility, and elevated policy uncertainty to unprecedented levels
• Structural Strengths:
  • A young population and expanding digital economy.
  • A growing middle class with increasing consumption power.
  • Government-led capex push and PLI schemes that bolster industrial activity.

Way Ahead

• Structural reforms: Durable structural reforms across several areas, including labor markets, education, regulation and competition, and financial sector policies, can jointly lift productivity and potential growth and support job creation.
• Technological Integration: Technological progress, related to digitalization and AI, can enhance productivity and potential growth.
• Fiscal Prudence: Maintaining fiscal sustainability amid high global debt and rising interest rates is critical.