IMF Upgrades India's Growth Outlook But Warns of Energy Price Risks

"We have modestly increased our forecast by 0.1 percentage point," Krishna Srinivasan, Director of the IMF's Asia and Pacific Department, said at a press briefing during the Spring Meetings.

He said the upgrade reflects strong momentum entering 2026 and easing tariff pressures. "Momentum coming into 2026 was strong," he said, adding that tariffs were lowered "from 50 to 10 per cent," which provided a boost to economic activity.

The IMF noted that India has also benefited from earlier tax reforms, which have supported growth alongside domestic demand.

However, Srinivasan cautioned that risks from the Middle East conflict remain significant. "If this shock intensifies both in terms of duration and expands beyond just oil and gas, that could be disruptive for India," he said.

India, like many Asian economies, is exposed to higher energy prices due to its reliance on imports. Rising oil and gas costs can feed into inflation and widen external imbalances.

On policy, the IMF said India has so far maintained a prudent fiscal stance. "They've been very prudent on their fiscal. They have built buffers over the years, and they've been able to provide support," Srinivasan said.

He stressed that these buffers will be critical if global conditions worsen. "If this intensifies, it'll get worse for all countries, including for India," he said.

The IMF reiterated its broader policy advice for the region, urging governments to allow market adjustments while protecting vulnerable groups. Countries should "allow price signals to work" and provide "targeted" and temporary support, it said.

On remittances, a key support for India's external sector, the IMF said flows have remained resilient despite the conflict. "Remittances have held pretty strong, pretty robust," Srinivasan said, noting that workers from India and other Asian countries have largely remained in the Middle East.

He added that reconstruction activity in the region could sustain remittance flows. "One part of me tells me that... remittances are likely to stay strong," he said.

The IMF also warned that broader spillovers from the conflict could affect trade, supply chains and commodity markets, increasing uncertainty for policymakers.

India has been one of the fastest-growing major economies in recent years, supported by domestic consumption, public investment and structural reforms. The country has also worked to strengthen fiscal discipline and build foreign exchange reserves.

However, its heavy dependence on imported crude oil has historically made it vulnerable to global price shocks. Sustained increases in energy prices have in the past led to higher inflation, wider current account deficits and pressure on the currency, making external developments a key risk factor for the economy.

- IANS