The International Monetary Fund (IMF) in the October outlook increased India’s growth projections by 20 basis points to 6.6% for 2025 whilst projecting a decline of the same intensity to 6.2% in 2026. Meanwhile, the Washington-headquartered financial institution predicts global growth would edge upwards by 20 basis points to 3.2% this year, with the outlook for 2026 unchanged at 3.1%.  

Elaborating the rationale for the upward revision for India, IMF attributed it to a carryover effect from a “strong” first quarter which helped New Delhi “more than offset” the impact of the U.S. President Donald Trump-induced tariff regime since July. India’s GDP in the June-end peaked had peaked to a five-quarter high of 7.8% driven primarily by sectors as manufacturing, services and construction.  The downward revision for 2026 thus considers a fading of the momentum from the first quarter.  

Tariff shock “smaller than originally expected” 

IMF attributed the slowdown in global growth to headwinds from “uncertainty and protectionism”. Although, it stated that the tariff shock is “smaller than originally announced [anticipated]”. “Global growth is holding steady despite major policy shifts. The increase in tariffs and its effect has been smaller than expected so far. This is thanks to new trade deals, multiple exemptions, and the private sector’s agility in rerouting supply chains,” said Pierre-Olivier Gourinchas, Chief Economist at the IMF.  

However, poignant to note, notwithstanding observing “robust” global trade activity in the first quarter of the year, driven by strong growth in U.S. imports and in exports from Asia and the Euro area – indicative of a front loading ahead of high tariffs, IMF observes subsequent data exhibit “signs of deceleration” in the second quarter.  

The Chief Economist explains despite a steady first half, the outlook remains “fragile”, and risk continue to emanate. “The main risk is that tariffs may increase further from renewed and unresolved trade tensions, which, coupled with supply chain disruptions, could lower global output by 0.3% next year,” he said.  

The adverse impact of the tariff and geopolitical uncertainty on demand remained a major concern at the last the Monetary Policy Commitee (MPC) meeting, the minutes of which was released on Wednesday (August 20, 2025) indicate. 

“Uncertainty in external demand, driven by tariff and geopolitical uncertainty remains the major drag on growth as it also hinders private investment intentions, which is yet to show visible signs of improvement” stated Sanjay Malhotra Reserve Bank of India (RBI) Governor and chairman of the MPC in the minutes. 

Stating that high-frequency indicators project buoyant rural economic activity as well as consumption and sluggishness in urban spending, he observed that during the remaining part of the financial year, growth would likely to receive support from both favourable supply-side factors as well as a supportive policy environment.

“Monsoon has progressed well, sowing has been satisfactory, and reservoir levels are comfortable, all of which augur well for farm output and rural demand,” he emphasised. 

“Urban demand is likely to pick up during the festive season, especially in a period of benign inflation. Services sector activity is also likely to remain strong, as evident from forward-looking assessments from surveys, he added. 

MPC external member Nagesh Kumar in his statement stated, “The economic growth outlook remains challenging.”

“The private investment sentiment is adversely affected by the trade policy uncertainties. While the signing of the U.K.-India FTA is an important positive development, the U.S. announcement of 25% tariffs on India is causing a lot of anxiety about the economic outlook,” he observed. 

“The preliminary calculations suggest that these tariffs may hurt the growth rate in the current year by 20 to 30 basis points but given the fact that the U.S. is a major market for India’s exports of labour-intensive goods such as textiles and garments, leather goods, gems and jewellery, shrimp among other food products, the threat of job losses is more serious,” he said in his statement.

Stating that the uncertainty was affecting the investment climate, he said that going forward, diversification of markets for goods would be important.

“In that context, the negotiations of the India-EU FTA need to be expedited and the FTAs or the comprehensive economic partnership agreements with Japan and the Republic of Korea need to be reviewed to make them more effective, especially for the export of labour-intensive goods,” he mentioned. 

“Tapping the domestic market fully for the finished consumer goods by reducing the dependence on imports would also be helpful. Enhancing the domestic value addition in consumer goods exports through building the globally known Indian brands and supply chains, including through overseas direct investments (ODI) and acquisitions of foreign retail chains, would also be important,” Dr Kumar pointed out.

External MPC member Prof. Ram Singh also voices similar concerns in his statement. 

”Prospects on the exports front are highly uncertain amidst ever-changing tariff announcements and protracted trade negotiations. The headwinds emanating from a fluid geopolitical scenario, heightened global uncertainties, and volatility in international financial markets pose serious risks to the domestic growth outlook.”

“U.S. tariffs have already put Indian exporters at a disadvantage. Signs of distress in growth and employment for MSMEs are visible in sectors reliant upon the US market, such as diamond and jewellery, textile and apparel, and fisheries,” he highlighted.