OPINION | IMF’s C Grade and India’s Economic Resilience: A closer look

The IMF has flagged areas where India must do better, including faster fiscal consolidation once the capex cycle matures

In its annual staff report for India for 2025, the International Monetary Fund (IMF) retained its “C” grade for India’s national account statistics, or GDP data, which simply means the data provided to the Fund may have “some shortcomings that somewhat hamper surveillance.” It doesn’t mean the IMF thinks India is faking its GDP. The same IMF report, in fact, acknowledges that India is actively working to address these issues. A major rebasing of National Accounts and CPI by the Modi government is underway, with a planned launch in early 2026. This update to a Base Year from 2011–12 to 2022–23 for GDP and IIP and a 2024 Base Year for CPI, along with methodological improvements, are welcome steps. Importantly, within 48 hours of the Q2FY26 numbers being released, the IMF’s Asia-Pacific Department issued a statement saying the new data “validates our view that India remains the standout performer among emerging markets” and hinted that the October 2025 WEO forecast would be revised upward by at least 50–70 basis points. In diplomatic language, that is the equivalent of a standing ovation. IMF’s “C” grade is merely routine caution, not condemnation. It simply means there are broad areas that need improvement.

Again, what Modi naysayers conveniently forget is that India has received a pretty good “B” on inflation control, monetary transmission, digital public infrastructure and labour market reforms. Any fair reading of the IMF report, especially when placed alongside India’s just-released 8.2% real GDP growth for the September quarter of FY2025–26 (Q2FY26), looks like a resounding vote of confidence in the world’s fastest-growing major economy, under the aegis of Prime Minister Narendra Modi. The 8.2% print is not a flash in the pan. What makes the 8.2% number breathtaking is its composition, with private final consumption expenditure (PFCE) up 7.9% in real terms, the strongest in 14 quarters. Gross fixed capital formation (GFCF) surged 7.3%, led by both government capex and a sharp rebound in corporate investment. Manufacturing expanded 9.1%, services 9.2%, and even agriculture, despite an uneven monsoon, clocked 3.5%. On the demand side, net exports contributed positively for the first time in seven quarters as merchandise exports rose 5.6% despite “Trump tariffs”.

The “B” on inflation is noteworthy. Headline CPI has consistently fallen in the last few months, with September and October retail inflation at 1.44% and 0.25% respectively. The IMF explicitly praises the “flexible inflation-targeting framework” and the “smooth transmission” seen in 2025. Another area coming in for effusive praise from the IMF is India’s digital public infrastructure, with UPI now handling almost 16 billion transactions every single month. The report says these tools under PM Modi have “meaningfully enhanced financial inclusion and tax compliance”.

An 8.2% GDP growth in Q2FY26 in an environment of global policy uncertainty, elevated commodity prices and geoeconomic fragmentation is therefore extraordinary by any metric. It is the kind of number that China used to once post in its heydays. What makes India’s growth story even more commendable than China’s is that it has achieved this stellar growth despite two Black Swan events, namely the Covid pandemic and the Russia–Ukraine conflict. Tariffs under Trump 2.0 have failed to dampen India’s entrepreneurial zest. China often ran surpluses but also massive excess capacity. India has avoided that pitfall. The IMF’s own debt sustainability analysis shows that under almost every stress scenario except a permanent 300 bps growth shock, India’s debt remains sustainable. Even in that extreme scenario, the adjustment required is modest compared with historical EM crises. Moreover, potential growth estimates are being revised upward. Several Wall Street houses (Goldman Sachs, Morgan Stanley, JPMorgan) now peg it closer to 8%. When an economy grows persistently above potential without overheating, it is a sign that the potential itself is expanding, exactly what India is experiencing through TFP gains from digitalisation, formalisation and infrastructure scale-up, which is essentially what Modinomics is all about.

The Fund has on multiple occasions acknowledged the dramatic surge in India’s ease of doing business (EODB) ranking, whereby India jumped from 142nd rank in 2014 to 44th in 2024 in the World Bank index (before it was discontinued). Also, FDI equity inflows touched a solid $82 billion in FY25. India over-achieved its 2020 Paris climate commitments a full eight years before the slated deadline and is on track for 500 GW non-fossil capacity by 2030. The IMF’s new Climate Policy Diagnostic rates India as one of only three large EMs with a “coherent and ambitious” nationally determined contribution, which speaks volumes about PM Modi’s commitment to “Green Growth”.

More importantly, leading indicators for Q3 and Q4 of FY26 remain robust. For the period April to November 2025, cumulative GST collections stand at a robust ₹14.76 lakh crore, an 8.9% YoY growth. Railway freight traffic is at record levels, while bank credit growth is at a healthy 11%. An analysis of 3,906 listed companies revealed that India Inc’s aggregate total income rose 7.5% year-on-year in the September quarter. This was the strongest revenue print in four quarters, while net profit jumped 34%, the highest since Q2FY24. The much-discussed “twin balance sheet” problem of 2012 is now a distant memory. Instead, we have a rare “twin balance sheet” cycle—strong corporate health → higher capex → rising jobs and wages → robust consumption → higher tax revenues → continued fiscal support for infrastructure. This virtuous loop under PM Modi is what separates India’s current expansion from previous booms that ended in tears.

Now let us also address some concerns raised by the IMF and whether they are valid at all. For instance, the IMF noted that while India remains committed to reaching a fiscal deficit of 4.4% in FY26, the glide path in the last two years has been slower than earlier plans because of higher capex allocation and subsidy support post-Covid. But the IMF also lauded the fact that almost 38% of the combined fiscal deficit is now capex, the highest in the G20. Again, the IMF flagged that the CAD could widen to 1.8–2.0% of GDP in FY26 if commodity prices spike again. It also repeated its long-standing advice to build even larger forex reserves. Well, currently our forex reserves are over $688 billion, covering 11 months of imports, which is great news. As for CAD, a 2% CAD in a year of 8% growth is cause for no worry at all. Also, despite average GDP growth of 8.25% in the last four financial years, India’s CAD has been consistently below 1%, which reflects strong investment demand, not profligacy. Moreover, India’s external debt is only 19.8% of GDP, short-term debt is predominantly rupee-denominated and the RBI’s reserve cover is the fourth highest globally. The IMF itself acknowledges that India’s external position in 2025 is “broadly in line with fundamentals”, a far cry from the “substantially overvalued” tag that some peer nations carry.

Also, the IMF cautions that gross NPAs could rise if global growth falters and that banks are still under-provisioned for climate transition risks. Well, the pleasant ground reality is, India’s GNPA ratio fell to a 13-year low of 2.1% in September 2025, while the capital adequacy ratio of banks stands at over 16.8%, which shows Indian banks are in fine fettle; stress tests show our banking system can withstand much more than a 300 bps rate shock. On climate, India has already retired 30 GW of coal capacity since 2020 and added 92 GW of renewable capacity in the same period, numbers the IMF report itself cites approvingly. India pledged to create an additional carbon sink of 2.5 to 3 billion tonnes of CO₂ equivalent through additional forest and tree cover by 2030. By 2021, it had already achieved 2.29 billion tonnes and has now already exceeded the target set for 2030.

The Fund gently chides India for female LFPR still hovering around 41.7% and for spatial inequality between States. Well, the same report applauds the fact that under the Modi government, over 107 million formal jobs were created between 2017–18 and 2024–25 under the EPFO umbrella and that female EPFO additions now outnumber male additions; what is even better is that the Gini coefficient has fallen from 0.36 to 0.25 over the last few years. Progress is becoming more even and directionally it is unmistakable.

Yes, the IMF has flagged areas where India must do better, including faster fiscal consolidation once the capex cycle matures, deeper labour-market reforms and accelerated energy transition financing. But when the same student tops the class with 8.2% growth, creates 18–20 million jobs every single year, lifts 250 million people out of multidimensional poverty since 2014 and does all this while keeping inflation, external balance and financial stability under control, the overall assessment can only be one of unqualified admiration. India is not a miracle; it is the logical outcome of a decade of patient institution-building, bold reforms and prudent macro management under Modi. The IMF’s nuanced grades only reflect the Fund’s institutional caution and its mandate to identify risks, even in super success stories like India. Savvy investors and policymakers will read between the lines and see what the 8.2% number screams from the rooftops—India’s growth engine is not just firing on all cylinders; it is upgrading to a bigger, cleaner, more efficient model, even as it races ahead. For the first time in modern history, the world's fastest-growing major economy and “India” are likely to remain synonymous not just for a year or two, but for the entire decade ahead. Clearly, Modinomics is here to stay.