Crawl-like, conservative, reforms, tariffs: Here are six key takeaways from IMF report

Takeaways from IMF's staff consultation report on India

India’s economy remains resilient despite the drag from US tariffs and global uncertainty, the IMF said in its 2025 Staff Consultation report released on November 26. While the IMF Board praised India’s fiscal discipline, labour market reforms and strong macroeconomic performance, it also urged calibrated fiscal action, greater exchange-rate flexibility and steady progress on structural reforms. The IMF Executive Board emphasised that accelerating reforms will be crucial for India’s ambition of becoming an advanced economy.

Below are the six key themes emerging from the assessment.

GST cuts help tide away US tariff crises

The IMF noted that the recent rationalisation of the GST structure will help cushion the impact of the 50 percent US tariffs imposed in August 2025. India’s exports to the US were down 9 percent in October.

The Fund’s baseline assumes that tariffs will remain in place for a prolonged period, but even under this scenario, it sees the overall macroeconomic impact as “manageable”, owing to India’s relatively low dependence on goods exports and strong domestic demand. Growth for FY26 is projected at 6.6 percent.

India disagrees with IMF estimates

Indian authorities pushed back against key assumptions made by IMF staff. They disagreed with the baseline scenario that US tariffs would remain indefinitely. They also argued that the external sector could regain momentum once new free-trade agreements take effect.

Officials further believed that the IMF’s estimate of India’s potential growth was “on the conservative side”.

A Moneycontrol poll of economists predicted growth to be 6.9 percent in the current fiscal against IMF's estimate of 6.6 percent.

Board suggests adjustment to pace of consolidation; India disagrees

The Executive Board advised that the pace of fiscal consolidation in FY27 should be linked to how tariffs affect the output gap. Under conditions where prolonged tariffs depress growth, the IMF recommended a pause in consolidation to allow fiscal policy to remain neutral.

The government disagreed. Authorities reiterated their commitment to continuing consolidation even next year, stressing that it would be “premature” to pause in FY27 given India’s credible fiscal guidance framework. India has set a target to bring down debt to 50 percent of GDP by FY31.

Reclassification of FX regime from stabilised to crawl-like arrangement

The IMF reclassified India’s de facto currency arrangement as crawl-like arrangement from stabilised classification last year. In 2023, India’s de facto arrangement was set as stabilised.

The Fund called for greater exchange-rate flexibility, recommending that currency interventions be limited to addressing disorderly market conditions. Allowing the rupee to move more freely, the IMF argued, would help absorb external shocks and reduce the need for costly reserve accumulation.

“India has limited FX mismatches, well-anchored inflation expectations, and a generally deep FX market… FX intervention should be used only when large shocks cause disruptions in liquidity conditions and malfunctioning of the FX market,” it said.

India will take a year more to reach $5 trillion goal

The IMF’s nominal GDP projections show India crossing the $5 trillion mark only in FY29, a year later than estimated earlier. This delay stems from slightly weaker-than-expected GDP growth and a sharper depreciation of the rupee.

Based on the IMF’s revised estimates, India is now expected to reach $4 trillion in FY26 and about $4.96 trillion in FY28, shy of the earlier $5.1 trillion projection. If the rupee continues to trend weaker than assumed, the gap between expectation and outcome could widen further.

Further room for monetary easing

On monetary policy, the IMF said the RBI’s data-dependent approach has been appropriate and pointed out to scope for further monetary easing if tariffs continue “at current levels”.

“In the currently highly uncertain environment, monetary policy needs to remain nimble, with an easing bias,” it said.

The RBI's Monetary Policy Committee is expected to take a call on rates next week. A Moneycontrol poll of economists found 80 percent of economists tilting towards a rate cut in the December meet with a 70 percent probability. The central bank has delivered 100 bps rate cut since the start of the year, bringing down the repo rate to 5.5 percent.