Amidst a landscape of shifting global economic dynamics, the International Monetary Fund (IMF) has highlighted India's increasing significance as a key engine for growth, contrasting it with a steady deceleration in China's economic expansion.
In recent statements, IMF Managing Director Kristalina Georgieva pointed out that while global growth is projected to be around 3%, a figure lower than pre-pandemic levels, India is emerging as a crucial player while China's growth is slowing. This perspective aligns with recent IMF forecasts, which have upgraded India's growth projections for 2025 and 2026 to 6.4%, reaffirming its status as the world's fastest-growing major economy. These revisions reflect a more favorable external environment than previously anticipated. For the fiscal year data, India's growth projections stand at 6.7% for 2025 and 6.4% for 2026.
Conversely, the IMF has also revised China's 2025 economic growth forecast upward to 4.8%. This upgrade, the most substantial among major economies, is attributed to China's stronger-than-expected economic performance in the first half of the year, particularly its robust export activity. The IMF anticipates China's GDP to expand by 4.2% the following year. Despite these revisions, the overall trend indicates a gradual deceleration in China's growth compared to previous decades.
Several factors contribute to India's strong growth outlook. Domestic demand remains robust, fueled by a rising working-age population and increasing private consumption, especially in rural areas. Sound monetary policy by the Reserve Bank of India (RBI) has also played a crucial role in maintaining economic stability. Furthermore, India's economy expanded by 8.2% in 2023-24, surpassing the 7% growth in 2022-23.
However, challenges remain for India. Infrastructure deficits, bureaucratic hurdles, and shortcomings in public education and healthcare could impede its potential. Despite a higher growth rate, India's GDP still lags behind China's. For instance, China's GDP is projected to be four times larger than India's by 2029.
China's deceleration can be attributed to several factors, including internal challenges stemming from industrial restructuring and a rebalancing of its economy. The Chinese government has set an annual economic growth target of around 5%. While the country's exports have remained strong, supported by a depreciating yuan, domestic demand and the property sector continue to be areas of concern.
The IMF's projections suggest that Asia's emerging market economies, particularly India and China, will continue to be significant contributors to global growth. However, the report also acknowledges that global economic activity remains subdued compared to historical averages. Risks to the global outlook are tilted to the downside, with potential trade tensions and policy uncertainty posing threats to economic activity.
Despite these challenges, India's rise as a key growth engine reflects its increasing integration into the global economy and its success in implementing reforms. As China's growth moderates, India is poised to play an even more prominent role in shaping the future of the global economy.
