New Delhi: The International Monetary Fund (IMF) on Wednesday hailed India’s “very strong economic performance and resilience” and urged the country to maintain fiscal discipline and accelerate structural reforms in an increasingly uncertain global environment.
India’s post-pandemic recovery remained firmly on track, with growth reaching 6.5% in FY25 and surging to 7.8% in the first quarter (April-June) of FY26, while retail inflation cooled sharply due to subdued food prices, the IMF Executive Board noted in its 2025 bilateral consultation with the country.
According to Article IV of the IMF Statutes, the Fund conducts annual bilateral consultations with each member state.
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The IMF highlighted the resilience of the country’s financial and corporate sectors, supported by multi-year low non-performing assets and healthy capital buffers. Fiscal consolidation has advanced and the current account deficit remains contained, supported by resilient services exports, it said in a statement.
As part of the annual consultations, a team of IMF staff visits a member country, gathers economic and financial data, and holds discussions with government officials to assess recent developments, policy priorities, and risks facing the economy. Meetings of the IMF team with Indian officials took place in Bengaluru, Chennai, Mumbai and New Delhi on 4-18 September. The report was completed on 6 November and then presented to the Executive Council for consideration on 21 November.
Reclassified exchange rate regime
However, in its country report released after consultations, the IMF said it had reclassified India’s de facto exchange rate regime to a “walk-through-like arrangement”, two years after previously describing the country’s exchange rate framework as a “stabilised arrangement”.
“India’s de jure exchange rate arrangement is floating and its de facto exchange rate arrangement is classified as a crawl-like arrangement. The de facto exchange rate arrangement classification is based on a statistical methodology implemented by staff equally across member countries,” it said.
According to the IMF publication, a creeping peg involves small, gradual adjustments to a currency to reflect inflationary gaps between a country and its trading partner.
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“The methodology follows a backward statistical approach that relies on past exchange rate movements and historical data. Therefore, this classification does not imply statements or opinions about future or intended policies, nor does it imply a political commitment on the part of the country’s authorities,” the report said.
“The period considered for potential reclassification of a de facto arrangement is any six-month period beginning with the onset of a new trend as observed since the arrangement’s last classification in the most recent AREAER report or Article IV,” he added.
The approach was supported by the RBI
On monetary policy, IMF directors backed a data-driven approach from the Reserve Bank of India (RBI), noting that persistently favorable inflation could open room for further easing and urging stronger monetary transmission and greater currency flexibility to help absorb external shocks.
The board said India’s financial system remains healthy, but urged vigilance about risks at non-bank lenders and recommended continued progress on financial reforms and stronger supervision.
The IMF board report also warned that India’s path forward is narrowing as global risks intensify.
Under the baseline scenario, which assumes extended US tariffs of 50%, the IMF forecasts real GDP growth of 6.6% in FY26, easing to 6.2% in FY27.
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The recent GST revision, which included a lower effective rate, is expected to ease some of the drag from tariffs while keeping inflation well anchored, he added.
However, the directors stressed that progress on comprehensive reforms will be essential to secure India’s ambitions to become an advanced economy.
The IMF supported the government’s efforts at fiscal consolidation, but warned that meeting this year’s deficit target (4.4% of GDP) would require strict spending discipline.
“While welcoming the recent simplification of the Goods and Services Tax (GST), they (Directors) called for careful monitoring of the fiscal impact of cuts in GST and personal income tax rates. The Directors also recommended that duty relief measures be targeted, transparent and time-bound and that the pace of fiscal consolidation in FY2026/27 be conditioned on the impact of the IMF’s output gap.”
“In the medium term, the directors emphasized that fiscal reserves should be supplemented by a focus on domestic revenue mobilization while increasing spending efficiency, including through a more targeted social safety net,” he added.
