India has formally challenged the International Monetary Fund’s baseline assumptions that underpin the Fund’s latest growth projections, particularly the premise that the 50 percent US tariffs on Indian goods will remain in place indefinitely.
These assumptions form the core of the IMF staff’s baseline scenario, which pegs India’s GDP growth at 6.6 percent this year and trims the 2026–27 forecast by 20 basis points to 6.2 percent.
The IMF staff argue that the growth drag next year stems largely from “high US tariffs — assumed to persist under the baseline — which dent external demand and investment”. India acknowledged that while the near-term macroeconomic impact of the tariff shock “should be manageable”, certain export-dependent industries would face disproportionate pressure.
However, New Delhi disagreed with the IMF’s baseline tariff scenario, calling the staff’s estimates overly pessimistic. Officials said the projected growth impact is “on the high side” given the likelihood of frontloaded exports, the scope for market diversification, and India’s expanding network of trade partners.
In its review, the IMF flagged further escalation of global trade tensions and deepening geoeconomic fragmentation as major near-term risks for India. These could tighten financial conditions, push up input costs, and weaken trade, FDI and overall economic momentum. Under the baseline — which assumes tariffs remain at present levels — the Fund noted that there would likely be room for monetary easing, supported by benign inflation dynamics.
Indian authorities accepted that global uncertainties remain elevated and that external shocks cannot be ruled out. But they stressed the “upside potential from newly concluded and forthcoming FTAs”, while also contending that the IMF’s estimate of India’s potential growth is too conservative.
The IMF staff recommended “targeted, transparent and time-bound support” for sectors most affected by tariffs, arguing that such measures would soften distributional impacts. They also suggested pausing fiscal consolidation in 2026-27, saying a neutral fiscal stance would be appropriate if tariffs persist and the expected output gap materialises amid heightened external uncertainty.
India, however, has firmly pushed back, stating it would be “premature to consider a pause” in fiscal consolidation, given the government’s credible and transparent fiscal glide path.
On monetary policy, the IMF reiterated that if tariffs remain intact, there is space for a modest rate cut as a negative output gap emerges against a backdrop of soft inflation. It added that a swift rollback of tariffs would reduce the need for further easing. The fund also advised the RBI to “look through” any one-off inflationary effect arising from the GST reform.
