The International Monetary Fund has revised upwards its estimate of India’s GDP growth in the current financial year 2025-26 to 7.3% from its earlier prediction of 6.6%.

This upward revision, the IMF said in its January 2026 World Economic Outlook update released on Monday (January 19, 2026), was primarily a reflection of stronger-than-expected growth in the third quarter, and “strong momentum” in the fourth quarter.

“In India, growth is revised upward by 0.7 percentage point to 7.3% for 2025 [FY 2025-26], reflecting the better-than-expected outturn in the third quarter of the year and strong momentum in the fourth quarter,” the report said. “Growth is projected to moderate to 6.4 percent in 2026 and 2027 as cyclical and temporary factors wane.”

The IMF’s prediction of 7.3% growth for 2025-26 is just marginally slower than the 7.4% the government of India itself predicted for the year.

For the global economy, the report projects growth to remain “resilient” at 3.3% in calendar year 2026 and at 3.2% in 2027, largely the same as the 3.3% estimated for 2025.

These forecasts entail a small upward revision for 2026 and no change for 2027 as compared with the predictions made in the October 2025 World Economic Outlook (WEO).

“This steady performance on the surface results from the balancing of divergent forces,” the report said. “Headwinds from shifting trade policies are offset by tailwinds from surging investment related to technology, including artificial intelligence (AI), more so in North America and Asia than in other regions, as well as fiscal and monetary support, broadly accommodative financial conditions, and adaptability of the private sector.”

On the inflation front, the report predicted that inflation in India is expected to go back to near-target levels after a decline in 2025 driven by subdued food prices. The Reserve Bank of India’s target for inflation is 4%.

India is expected to grow by 7.2% in the financial year 2025-26, with consumption and public investment expected to “largely offset” the impact of the tariffs by the United States, the United Nations Department of Economic and Social Affairs (UNDESA) said in a report. 

This 7.2% estimate, presented in the UNDESA’s World Economic Situation and Prospects 2026 report, is slightly slower than the 7.4% growth predicted by the Indian government on Wednesday (January 7, 2026) in its First Advance Estimates of GDP for 2025-26.

The report had predicted India’s growth to be 7.4% in calendar year 2025. On a fiscal year basis, the report predicts that India will grow at 6.6% and 6.8% in 2026-27 and 2027-28, respectively.

“In India, growth is estimated at 7.4% for 2025 and forecast at 6.6% for 2026 and 6.7% for 2027, supported by resilient consumption and strong public investment, which should largely offset the adverse impact of higher United States tariffs,” the report said. “Recent tax reforms and monetary easing should provide additional near-term support.”

However, the report did note that, going ahead, the U.S. tariffs could begin to weigh on the economy if they persist.

“However, higher United States tariffs could weigh on export performance in 2026 if current rates persist, as the United States market accounts for about 18% of total exports from India,” it said. 

On the other hand, the report added that, while the tariffs may adversely affect some product categories, key exports such as electronics and smartphones are expected to remain exempt. In addition, it said strong demand from other major markets, including Europe and the Middle East, is projected to partially offset the impact of the tariffs. 

“On the supply side, continued expansion in manufacturing and services sectors will remain a key driver of growth throughout the forecast period,” the report said.

It noted that investment trends among developing economies diverged in 2025. 

“India recorded strong growth in gross fixed capital formation, led by higher public spending on physical and digital infrastructure, defence, and renewable energy,” the report said. “The Cooperation Council for the Arab States of the Gulf (GCC) countries continued to undertake large-scale capital investments aligned with long-term economic diversification strategies.” 

However, in contrast, the report noted that China saw a contraction in its fixed asset investment through the first three quarters of 2025, due to the ongoing weakness in the property sector in that country.

“The Indian rupee stabilised against the United States dollar in the first half of the year, supported by broad dollar weakness,” the report said. “However, in the second half, the Indian rupee edged lower following stronger-than-expected growth in the United States and ongoing trade negotiations.” 

It added that portfolio outflows and higher U.S. tariffs added to depreciation pressures on the Indian rupee. 

“Nonetheless, robust economic performance in India is expected to provide support for the country’s currency in the near term,” the report noted.

The data in the report showed that India’s real effective exchange rate —  which assesses the effect of currency changes and inflation differentials on the international competitiveness of the rupee — improved to 100.9 in 2025 as compared to 104.7 in 2024.

A rise in the index denotes a fall in competitiveness and vice versa. 

India has surpassed Japan to become the world’s fourth largest economy with a size of $4.18 trillion and is poised to overtake Germany to become the third largest by 2030, the government said on Tuesday. With continuing good growth numbers, India is also the world’s fastest-growing major economy, it said.

India’s real GDP grew 8.2% in the second quarter of 2025-26, up from 7.8% in the first quarter and 7.4% in the fourth quarter of the last fiscal.

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“With GDP valued at $4.18 trillion, India has surpassed Japan to become the world’s fourth largest economy and is poised to displace Germany from the third rank in the next 2.5 to 3 years with a projected GDP of $7.3 trillion by 2030,” said the government in a statement providing a snapshot of reforms in 2025.

The U.S. is the world’s largest economy, and China occupies the second spot.

The growth momentum further surprised on the upside, with GDP expanding to a six-quarter high in Q2 of 2025-26, reflecting India’s resilience amid persistent global trade uncertainties, it said. Domestic drivers, led by robust private consumption, played a central role in supporting this expansion.

The release said international agencies have echoed this optimism and cited projections made by various entities. The World Bank has projected a 6.5% growth in 2026, and Moody’s expects India to remain the fastest-growing G20 economy with a growth of 6.4% in 2026 and 6.5% in 2027. The International Monetary Fund has raised its projections to 6.6% for 2025 and 6.2% for 2026, and the Organisation for Economic Cooperation and Development forecasts 6.7% growth in 2025 and 6.2% in 2026. Also, the S&P anticipates a growth of 6.5% in the current fiscal and 6.7% in the next, the Asian Development Bank has lifted its 2025 forecast to 7.2%, and Fitch has raised its FY26 projection to 7.4% on stronger consumer demand.

“India is among the world’s fastest-growing major economies and is well-positioned to sustain this momentum. With the ambition of attaining high middle-income status by 2047 – the centenary year of its independence, the country is building on strong foundations of economic growth, structural reforms, and social progress,” the government said.

The release highlighted that inflation remains below the lower tolerance threshold, unemployment is declining, and export performance continues to improve. Furthermore, financial conditions have stayed benign, with strong credit flows to the commercial sector, while demand conditions remain firm, supported by a further strengthening of urban consumption.

Ahead of Budget 2026, Finance Minister Nirmala Sitharaman on Saturday (December 6, 2025) said the simplification of customs would be the next big reform agenda for the government.

During the current financial year, the government undertook reforms such as rate rationalisation and simplification of the income tax and Goods and Services Tax (GST) in a bid to boost consumption by providing more cash in the hands of the common man.

“We need a complete overhaul of customs… we need to have customs simplified for people to feel that it is not cumbersome to comply… need to make it more transparent,” Ms. Sitharaman said while speaking at the HT Leadership Summit here.

“There is a need to bring the virtues of income tax to the customs side in terms of transparency,” she said, adding that the proposed reforms will be comprehensive and entail customs duty rate rationalisation.

The announcements to this effect can be made in the upcoming Budget, likely to be presented on February 1.

“We have brought down customs duty over the last two years steadily. But in those few items where our rates are considered to be over the optimal level, we have to bring them down as well. Customs is my next big cleaning-up assignment,” she said.

In this year’s Budget, among other measures announced, the government proposed eliminating seven additional customs tariff rates on industrial goods, following the removal of seven tariffs in 2023-24 (announced in the previous budget speech on July 23, 2024). This reduces the total number of tariff slabs to eight, including a zero rate.

On the depreciating rupee against the dollar, Ms. Sitharaman said, it will find its natural level.

The rupee has depreciated about 5% against the U.S. dollar during the calendar year 2025. The rupee breached the 90-a-dollar level for the first time to settle at a fresh all-time low of 90.21 (provisional) on Wednesday (December 3, 2025), down 25 paise from its previous close, amid sustained foreign fund outflows and higher crude oil prices.

Ms. Sitharaman exuded confidence that the GDP growth would be 7% or above during the current financial year.

The Indian economy grew by a higher-than-expected 8.2% — a six-quarter high — as increased factory production in anticipation of a consumption boost from the GST rate cut helped offset deceleration in farm output.

The growth in the second quarter, compared with 7.8% in the preceding three months and 5.6% in the year-ago period, was aided by a strong showing from the services sector, which clocked double-digit growth.

For the first half ended in September, India clocked a growth rate of 8%.

India’s services sector growth witnessed the slowest pace of expansion in five months in October, as competitive pressures and heavy rains in parts of the country led to a slower increase in output, according to a monthly survey released on Thursday (November 6, 2025).

The seasonally adjusted HSBC India Services PMI Business Activity Index fell from 60.9 in September to 58.9 in October, indicating the slowest pace of expansion since May.

Notwithstanding the moderation, the October Services PMI index was comfortably above both the neutral mark of 50 and its long-run average of 54.3.

In the Purchasing Managers’ Index (PMI) parlance, a print above 50 means expansion, while a score below 50 denotes contraction.

“India’s services PMI softened to 58.9 in October, which represented the slowest pace of expansion since May. Competitive pressures and heavy rains were cited as contributors to the sequential slowdown,” Pranjul Bhandari, Chief India Economist at HSBC, said.

While factors like demand buoyancy and GST (Goods and Services Tax) relief reportedly led to an improvement in operating conditions, competition and heavy rains constrained growth, as per the HSBC India Services PMI, compiled by S&P Global from responses to questionnaires sent to a panel of around 400 service sector companies, said.

The international demand for Indian services improved further, as signalled by another increase in external sales. The rate of expansion was solid, though the weakest since March, as per the survey.

Meanwhile, monitored firms suggested that the GST reform curbed price pressures. Input costs and output charges rose at the slowest rates in 14 and seven months, respectively.

Going forward, companies were strongly confident of a rise in business activity over the next 12 months.

Amid reports of efforts to support rising new-business intake, meet delivery deadlines, and maintain reliable services, companies recruited additional staff in October.

Meanwhile, the combined output of India’s manufacturing and service sectors continued to expand sharply in October, but growth lost momentum. Falling from 61 in September to 60.4, the HSBC India Composite PMI Output Index indicated the softest increase since May.

“India’s composite PMI fell on a sequential basis from 61 in September to 60.4 last month, largely due to the slowdown in the services sector,” Mr. Bhandari said.

Composite PMI indices are weighted averages of comparable manufacturing and services PMI indices. Weights reflect the relative size of the manufacturing and service sectors according to official GDP data.

The Congress on Tuesday (September 23, 2025) voiced concern over falling exports of tariff-free products like pharma and smartphones to the United States, saying it is “certainly not a seasonal fall”.

In a post on X, Congress leader Jairam Ramesh said, “It was only to be expected that India’s exports to the USA that have been subjected to higher Trump tariffs would fall. And indeed they have.” “But why and how are India’s TARIFF-FREE exports to the USA falling?” he asked.

He said an analysis by the respected New Delhi-based research outfit GTRI is a cause for concern, even if the data is only for four months.

 Package | A collection of ground reports and analyses, uncovering the impact of these tariffs on different facets of the Indian economy.

“Of course, it reveals that exports of gems and jewellery, seafoods, textiles and garments, and chemicals have fallen. But surprisingly India’s export of tariff-free products have also declined from $3.37 billion in May 2025 to $1.96 billion in August 2025. This includes exports of pharmaceuticals and smartphones,” Mr. Ramesh said in his post.

“This is certainly not a seasonal fall,” he also said.

India’s smartphone exports to its largest market, the U.S., fell 58% from $2.29 billion in May to $964.8 million in August, think tank GTRI said on Monday (September 22).

It said the development is alarming and counter-intuitive as there are no tariffs on smartphones.

“This demands urgent investigation to uncover the real reasons that are driving the fall,” the Global Trade Research Initiative (GTRI) said.

Smartphone exports, India’s largest export to the U.S., plunged 58% from $2.29 billion in May 2025 to $964.8 million in August, it said, adding the fall was steady month by month.

It added that tariff-free products, which account for 28.5% of India’s August exports, posted the sharpest contraction of 41.9%, falling from $3.37 billion in May to $1.96 billion in August.

Pharmaceuticals also weakened, with exports dropping 13.3%, from $745 million in May to $646.6 million in August.

India’s exports rose by 6.7% to $35.1 billion in August, while imports declined by 10.12% to $61.59 billion, according to official data released on Monday (September 15, 2025).

Exports were worth $32.89 billion in August last year and imports stood at $68.53 billion.

Trade deficit during August 2025 was $26.49 billion as against $35.64 billion in the year-ago month.

During April-August 2025-26, exports stood at $184.13 billion, while imports were at $306.52 billion.

Briefing the media on the data, commerce secretary Sunil Barthwal said despite the global uncertainties and trade policy uncertainties, India’s exporters have done extremely well.