IMF Board welcomes India’s labour reforms, says faster structural changes key to Viksit Bharat goal

India, as per the IMF assessment, is expected to grow 6.6 percent this fiscal and 6.2 percent in FY27. (Representative image)

The International Monetary Fund’s Executive Board has welcomed India’s new labour market reforms, saying the move strengthens the broader structural transformation needed to achieve the government’s Viksit Bharat ambition.

The assessment came as part of the Board’s conclusion of the 2025 Article IV consultation released on November 26.

Executive Directors commended India’s “very strong economic performance and resilience,” noting that growth has remained robust despite global uncertainty.

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India, as per the IMF assessment, is expected to grow 6.6 percent this fiscal and 6.2 percent in FY27.

The Board attributed this strength to sound macroeconomic management and steady reform momentum. They also backed the commitment to fiscal consolidation, while cautioning that meeting this year’s deficit target would require firm expenditure discipline. They welcomed the recent simplification of the goods and services tax regime but urged close monitoring of the fiscal impact of lower GST and personal income-tax rates. They said that the country needed to adjust the pace of consolidation in FY27 depending on how the new US tariffs affect India’s output gap.

India has disagreed with this suggestion of a pause, reaffirming its commitment to achieve fiscal consolidation goals.

For the medium term, the Board stressed on the need to build fiscal buffers through stronger domestic revenue mobilisation and more efficient spending.

They encouraged a review of India’s medium-term debt target in light of next year’s GDP rebasing, and called for stronger oversight of state-level finances and contingent liabilities.

India also expressed its disagreement with IMF’s conservative view of India’s growth outlook and the assumption of the US’ 50 percent tariffs sustaining for a longer period of time.

On monetary policy, the Board suggested that there could be more room for further monetary easing. They also recommended improving monetary transmission and allowing greater exchange-rate flexibility, with interventions limited to managing disorderly market conditions.

IMF, in the past, has been critical of RBI’s interventions in the forex market to keep rupee in a range.

The directors also pointed out that India’s financial system remains sound, supported by high capital and liquidity positions, but advised careful monitoring of vulnerabilities among non-bank lenders and rising interconnectedness across the financial system.

There were also suggestions for higher R&D spending and innovation and green transition.