IMF raises India’s FY27 growth forecast to 7%, warns of converging risks
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The International Monetary Fund (IMF) has raised India’s FY27 growth forecast to 7% from 6.4%, but warned that a combination of global risks could threaten the country’s economic outlook.
“The biggest worry is if all of these come together, the confluence of risks come together, that can have a significant bearing on prospects for India and for the region,” Krishna Srinivasan, Director of the IMF’s Asia and Pacific Department, told India Today in an interview.
The risks include an energy crisis triggered by disruptions in the Strait of Hormuz, a weakening rupee, rising borrowing costs, uncertainty over artificial intelligence (AI) and the threat of El Nino.
“The energy shock is likely to get worse before it gets better,” Srinivasan said.
He warned that prolonged energy disruptions could fuel inflation, weaken India’s external balances and weigh on growth. Higher energy costs could also reduce household purchasing power and increase production expenses for businesses.
Srinivasan said central banks must prioritise price stability as inflationary pressures build. He also cautioned that governments have limited room to absorb rising energy costs through fiscal measures.
“Fiscal buffers are thinning, not just in India, but across the region, because of the shocks we've had back to back,” he said.
On the rupee, Srinivasan said the currency should be allowed to adjust to external shocks, with the central bank intervening if depreciation fuels inflation or destabilises markets.
“The rupee should be the first line of defence, allowing it to move to reflect the shock is important,” he said.
Srinivasan welcomed India’s trade agreements with the European Union and the UK, describing them as important steps towards diversifying trade and investment. However, he called for labour and land reforms, an easier business environment and measures to attract foreign investment.
He also highlighted the need to reskill workers as AI transforms employment patterns, noting that demand for AI-related skills continues to rise.