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India’s recent economic performance

India’s GDP grew by 8.2% in the second quarter (July–September) of FY26, according to official data released on 28 November. This is the highest growth in the last six quarters. In Q1 FY26, GDP increased by 7.8%, bringing growth in the first half of the fiscal year to 8%. The Q2 expansion exceeded expectations of several institutions, including the RBI, which had forecast 7% growth. The surge was driven largely by strong performances in the manufacturing and services sectors.

However, the data has attracted scrutiny. The Congress has raised questions, and the latest IMF country report has again assigned Indian statistics a “C” grade—just one step above the lowest rating.

Despite headline growth, many economists remain concerned. They point out that while real GDP growth—adjusted for inflation—was higher than anticipated, the nominal GDP growth rate of 8.7% indicates subdued underlying activity. Madan Sabnavis, Chief Economist at Bank of Baroda, reportedly noted that such low nominal GDP growth complicates the government’s efforts to meet its fiscal deficit target of 4.4%, which was based on an assumed nominal growth rate of 10.1%. Upasna Bhardwaj, Chief Economist at Kotak Mahindra Bank, also expressed concern, stating that single-digit nominal growth continues to signal weak economic momentum.

Key points from the IMF’s country report on India

The IMF released its latest country report on 26 November, clearly emphasizing the need for structural reforms if India is to achieve its development goals. A central recommendation is the strengthening of human capital, particularly through increased female labour force participation—an essential factor in growth models developed by economists such as Robert Solow.

A major structural weakness for India has long been its low female labour force participation rate. Although government data suggests a recent rise, many economists attribute this to changes in the definition of labour force participation. Under the revised definition, anyone—male or female—who performs any work for more than three days in the reference week is counted as part of the labour force, regardless of whether they receive wages. In contrast, the ILO considers only wage-earning or remunerated work. In practice, only 17–18% of Indian women are in wage or salaried employment in regular, casual, or contractual forms. India ranks among the lowest in the world on this indicator, trailing countries such as Bangladesh, Nepal, and Pakistan. The IMF correctly highlights this as a critical vulnerability.

The IMF also recommends maintaining high levels of public investment, given the prolonged weakness in private capital formation. While public expenditure has supported economic activity, the sustainability of such an approach remains uncertain.

Another recommendation is improving the business environment. Although the IMF report does not elaborate extensively, the long-observed trend of growing numbers of billionaires relocating abroad for more favourable business conditions underscores this concern.

Important policy recommendations

On fiscal policy, the IMF calls for decisive fiscal consolidation to rebuild buffers and create fiscal space for continued public investment and other priorities. The Fund also advises maintaining exchange-rate flexibility with limited RBI intervention.

In the financial sector, the IMF notes that systemic risks remain broadly contained but warns of vulnerabilities arising from concentration risks and increasing interconnectedness, which must be addressed.

On structural policy, the IMF stresses that sustained high growth and adequate job creation require strong reforms. It recommends prioritizing efficient public investment, enhancing labour market flexibility, streamlining regulations, and liberalizing trade and investment policies to improve competitiveness and attract FDI. Strengthening the insolvency framework and judicial capacity, it notes, would further support firm productivity and dynamism. These recommendations align with the IMF’s standard policy prescriptions for emerging economies.