IMF Wraps 2024 Article IV Consultation With India
Washington, DC: The Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation [1] with India.
Despite recent moderation, India’s economic growth has remained robust, with GDP growth of 6 percent y/y in the first half of 2024/25. Inflation has broadly declined within the tolerance band, though food price fluctuations have created some volatility. The financial sector has remained resilient, with non-performing loans at multi-year lows. Fiscal consolidation has continued, and the current account deficit has remained well contained, supported by strong growth in service exports.
Real GDP is expected to grow at 6.5 percent in 2024/25 and 2025/26, supported by robust growth in private consumption on the back of sustained macroeconomic and financial stability. Headline inflation is expected to converge to target as food price shocks wane. The current account is expected to widen somewhat but remain moderate at -1.3 percent of GDP in 2025/26. Looking ahead, India’s financial sector health, strengthened corporate balance sheets, and strong foundation in digital public infrastructure underscore India’s potential for sustained medium-term growth and continued social welfare gains.
Risks to the economic outlook are tilted to the downside. Deepening geoeconomic fragmentation could affect external demand, while deepening regional conflicts could result in oil price volatility, weighing on India’s fiscal position. Domestically, the recovery in private consumption and investment may be weaker than expected if real incomes do not recover sufficiently. Weather shocks could adversely impact agricultural output, lifting food prices and weighing on the recovery in rural consumption. On the upside, deeper implementation of structural reforms could boost private investment and employment, raising potential growth.
Executive Board Assessment [2]
Executive Directors commended the authorities’ prudent macroeconomic policies and reforms, which have contributed to making India’s economy resilient and once again the fastest growing major economy. Directors stressed that in the face of headwinds from geoeconomic fragmentation and slower domestic demand, continued appropriate policies remain essential to maintain macroeconomic stability. India’s strong economic performance provides an opportunity to advance critical and challenging structural reforms to realize India’s ambition of becoming an advanced economy by 2047.
Directors commended the authorities’ commitment to fiscal prudence and welcomed the adoption of a debt target as the medium-term fiscal anchor, which has enhanced transparency and accountability. Given significant development and social needs, Directors recommended continued, well-calibrated fiscal consolidation over the medium term to rebuild buffers, ease debt service, and reduce debt. They suggested a greater focus on domestic revenue mobilization, which together with current expenditure rationalization, such as better targeting of subsidies, can create space for growth-enhancing expenditure on infrastructure and health. Notwithstanding fiscal disparities across states, Directors also broadly agreed that a more holistic fiscal framework that includes state and central government, as well as a more detailed fiscal deficit path with sufficient flexibility, could be used as an operational guide.
Directors welcomed the Reserve Bank of India’s well-calibrated monetary policy with inflation remaining within the target band. They noted that opportunities could arise to gradually lower the policy rate further, and stressed that monetary policy should remain data-dependent and well communicated. Directors recommended greater exchange rate flexibility as the first line of defense in absorbing external shocks, with foreign exchange interventions limited to addressing disorderly market conditions. A few Directors also saw the need for foreign exchange interventions in other cases noting limitations in the current global financial safety net.
Directors welcomed the 2024 Financial System Stability Assessment, which points to the overall resilience of India’s financial system, and encouraged the authorities to use the current favorable environment to further strengthen financial resilience. Noting pockets of vulnerability from the interconnectedness among nonbank financial institutions, banks, and markets, as well as from concentrated exposures to the power and infrastructure sectors, Directors recommended further aligning India’s framework of financial sector regulation, supervision, resolution, and safety net with international standards. A number of Directors also suggested greater flexibility in priority sector lending. Directors encouraged the authorities to further improve the AML/CFT framework.
Directors emphasized that comprehensive structural reforms are crucial to create high-quality jobs, invigorate investment, and unleash higher potential growth. Efforts should focus on implementing labor market reforms, strengthening human capital, and supporting greater participation of women in the labor force. Boosting private investment and FDI is also vital and will require stable policy frameworks, greater ease of doing business, governance reforms, and increased trade integration which should include both tariff and nontariff reduction measures with all parties involved. In this context, Directors welcomed India’s recent tariff reductions, noting that these can enhance competitiveness and foster India’s role in global value chains. Directors commended India’s significant progress in emission intensity reduction and renewable energy deployment and agreed that a balanced climate policy framework, alongside greater access to concessional financing and technology, would be key to achieving net zero emissions by 2070. Directors also welcomed the ongoing capacity development provided to further upgrade the quality, availability, and timeliness of India’s macroeconomic and financial statistics.
[1] Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country’s economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board.
[2] At the conclusion of the discussion, the Managing Director, as Chair of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country’s authorities. An explanation of any qualifiers used in summings up can be found here: http://www.IMF.org/external/np/sec/misc/qualifiers.htm .
https://www.imf.org/en/News/Articles/2025/02/26/pr25045-india-imf-executive-board-concludes-2024-article-iv-consultation-with-india