India pushes back on IMF’s tariff assumptions, calls its growth estimates conservative

IMF

India has pushed back against the IMF staff’s assumption that the recently imposed 50 percent US tariffs on Indian merchandise exports will remain in place indefinitely, calling the Fund’s growth estimates “conservative”. The views were reflected in the authorities’ response section of the IMF’s 2025 Article IV Staff Report.

The IMF staff, in its baseline projections, assumes that the higher US tariffs, introduced in August, will persist and weigh on India’s outlook in FY26 and FY27.

The IMF has projected 6.6 percent growth in FY26 and 6.2 percent in FY27. A recent Moneycontrol poll had predicted GDP growth at 6.9 percent in FY26.

The Fund noted that India’s exposure to merchandise exports is limited, but it still expected a drag on external demand, investment sentiment, and tariff-affected industries.

However, Indian authorities disagreed with the baseline’s permanence assumption, arguing that the growth impact would be smaller given frontloaded effects and India’s ability to diversify export markets.

They also highlighted that newly concluded and forthcoming free trade agreements could offer meaningful upside.

On inflation, both sides broadly agreed that benign dynamics will continue, aided by the GST reform and subdued food prices.

The government also reiterated its commitment to fiscal consolidation.

“Fiscal plans for FY2026/27 should adapt to emerging challenges. With an output gap expected to open next FY under the baseline (assuming that the 50 percent tariffs remain in place) and high external uncertainty, a neutral fiscal stance rather than consolidation would be warranted. That said, if a tariff reduction avoids an output gap, fiscal consolidation should continue next year,” IMF staff had said.

Officials said it would be premature to consider a pause given the credibility of India’s transparent fiscal guidance path and expressed confidence in achieving the medium-term debt anchor of 50 percent of GDP by FY31.

India’s economy is expected to remain on firm footing this year despite the drag from steep US tariffs, supported in part by the recent reduction in the goods and services tax (GST), IMF noted.