In its assessment, the IMF evaluates India in four major policy domains – fiscal policy, monetary policy, the financial sector, and a broad set of structural factors – and offers recommendations on each.
In the recently published 2025 as a part of the Article IV Consultation, the International Monetary Fund (IMF) has given a ‘C Grade’ to India’s national accounts and government finance data infrastructure. Under Article IV of the IMF’s articles of agreement, it holds annual bilateral discussions with members to assess their economic health. This is the same grading India received in 2024 also.
The rating comes at a time when the ruling dispensation tends to lap up any positive review as testament to India’s Vishwaguru status under Prime Minister Narendra Modi’s leadership. And whenever there is bad press, it is either buried or is cited as an international “conspiracy”.
What IMF reported in the latest data adequacy assessment is something economists have been saying for the past many years – India’s data on economic indicators are either missing, or they are fudged and often not available for public scrutiny, raising serious concerns about its veracity. Professor Arun Kumar has been ringing this warning bell for years now. That our GDP calculation does not take into account the fact that a series of shockers have altered the face of the unorganised sector beyond recognition. This includes demonetisation, the GST shockwave and finally the lockdown.
And while the organised sector has been consolidating at the expense of the unorganised sector, we still use the data of the former as a proxy for the state of the latter which is in shambles. This seriously impairs our GDP calculation and adds to the overestimation.
While the news of ‘C Grade’ being accorded to India’s official data has justifiably received attention, there’s much more in the 116 page report which ironically is laudatory for the Indian government. IMF Article IV consultations are its annual check-ups on member countries’ economies – but behind the technocratic language lies a deeply political process.
IMF assessments matter because they function not just as technical reviews but as influential knowledge products that shape how countries, markets, and global institutions think about economic policy. Through its Article IV reports the IMF produces analyses that almost define what “sound” macroeconomic management looks like. It privileges certain ideological dogmas – GDP growth, fiscal consolidation, inflation targeting, market-driven reforms – which then influence domestic policy debates and decisions.
An IMF endorsement can boost investor confidence, while critical observations can pressure governments to align policies with the Fund’s preferred frameworks. A sound economy is expected to produce ‘growth’ rather than ensure socio economic well being of all the people. In fact, the Indian policy trajectory has more or less been on the same page with institutions such as the IMF in their framing of the economy.
In its assessment, the IMF evaluates India in four major policy domains – fiscal policy, monetary policy, the financial sector, and a broad set of structural factors – and offers recommendations on each. The explainer is followed by a short critique of IMF recommendations.
So What Exactly Does the Report Suggest?
Fiscal Policy
Fiscal policy is basically how the government earns and spends money; the IMF suggests keeping borrowing under control, improving tax collection, and focusing spending on investment and social priorities.
The IMF says that lower-than-expected nominal GDP and recent cuts to personal income tax and GST may reduce tax collections this year, but the Union government’s deficit – the amount by which government spending exceeds its earnings – target of 4.4% of GDP is still within reach.
Looking ahead, the IMF says fiscal plans for next year (FY2026/27) should respond to economic conditions rather than follow an automatic path of consolidation. If current high tariffs imposed by the United States slow the economy, the IMF recommends pausing consolidation and adopting a neutral fiscal stance to support growth. But if tariffs are lowered and growth improves, consolidation can resume sooner. The IMF also emphasises improving tax administration — and more digital systems — to make compliance easier and help the government collect taxes more efficiently.
The IMF shows concern that many states face rising debt due to past bailouts, pensions, and populist schemes, and need reforms to boost their own revenues, improve spending efficiency, and stick to deficit limits. More-targeted subsidies and incentives that reward states for responsible fiscal behaviour would help create more space for essential investments in infrastructure, health, and education.
Monetary Policy
Monetary policy – run by the Reserve Bank of India (RBI) – is about managing interest rates and money supply to regulate inflation. This is based on the simple assumption: if too much money is available, people spend more than the economy can produce, and prices rise; if money is tighter, people spend less, demand cools, and prices stabilise. So, the IMF recommends that the RBI stay flexible, be ready to adjust rates if growth slows.
The IMF says that India’s monetary policy stance – neither too tight nor too loose – has been broadly appropriate. Since inflation is below RBI’s predefined limits, it has already cut interest rates by 100 basis points to enhance liquidity in the banking system, in the hope of nudging people to spend more. More spending, it is wished, would lead to more production and services, and thus more ‘growth’. Going forward, the IMF recommends that monetary policy stay “nimble,” meaning the RBI should be ready to adjust quickly as conditions change. If high US tariffs slow India’s economy, there is room for slightly more rate cuts; if tariffs are reversed and growth stays strong, no further easing may be needed.
Financial Policy
Financial sector policy refers to the plan and regulations that keep banks and non-bank lenders safe; the IMF advises watching vulnerabilities, improving risk management, and strengthening regulations so the system stays stable.
The IMF diagnosis is that India’s overall financial system is stable, with banks well-capitalised and bad loans at low levels, but it highlights pockets of rising risks – especially from unsecured personal loans and the rapidly growing non-banking financial company (NBFC) sector. It recommends stronger credit-risk management rules for banks to prepare the system better for future shocks.
A major IMF concern is the rising importance of NBFCs and their vulnerabilities. NBFCs – especially large, state-owned infrastructure finance companies – are heavily exposed to the stressed power sector, which increases concentration risks. Problems in the power sector, for example, could spread across infrastructure NBFCs and then to banks that fund them—meaning risks can move through the system in unexpected ways. In simple terms: NBFCs can run into trouble faster because they don’t have stable deposits like banks, but banks are also at risk because they lend more and more to these NBFCs. The IMF recommends bringing state-owned and private NBFCs under similar regulatory standards, removing case-by-case exemptions, and tightening rules on large exposures. It also urges the RBI to strengthen liquidity rules for NBFCs, collect more detailed data, and consider limits on how much banks can lend to NBFCs that take on excessive risks.
The message is that NBFCs are now too big and too connected to ignore, so India needs stronger rules, better data, and a closer watch to prevent small cracks from turning into systemwide problems.
Risk Assessments
A sudden drop in household confidence, the IMF surmises – could slow private consumption and overall growth. To safeguard demand, the quantity of goods or services consumers are willing and able to buy, the IMF recommends pushing structural reforms that create steady, job-rich growth. If the economy weakens, India should temporarily slow fiscal tightening while easing monetary policy as long as inflation stays within target. Which implies slightly raising public expenditure and making credit a little cheaper, if demand is slow.
The IMF further urges India to invest in climate-resilient infrastructure, strengthen disaster preparedness, speed up the shift to green energy, improve social protection and healthcare, and support climate-smart, market-oriented agriculture—especially to shield vulnerable communities. The IMF recommends tapping more concessional international finance, encouraging greater private sector participation, and adopting carbon pricing or similar tools to fund the transition sustainably without overburdening public finances.
Labour
Productivity is seen as a measure of how efficiently an economy uses its resources – people, land, machines, and technology—to produce goods and services. Higher productivity means you can produce more output with the same amount of effort or inputs. For a worker, it means producing more value per hour.
The IMF says there is still a lot of room to improve productivity. Over the past two decades, most of India’s productivity gains have come from the services sector, where firms have become more efficient and resources have shifted toward higher-performing industries. Manufacturing, however, has seen little improvement: most industries have not boosted efficiency, nor has production shifted toward more productive segments.
One of the biggest opportunities the IMF sees for raising productivity comes from moving workers out of low-productivity agriculture into more productive manufacturing and services.
Within manufacturing, the IMF opines, India’s productivity is dragged down by the dominance of very small firms that struggle to grow. Nearly three-quarters of manufacturing establishments, it points out, have fewer than five paid workers—much higher than in advanced economies. As a result, India faces a “double disadvantage”: too many tiny firms employing too many workers, and these firms being far less productive than global peers. Overcoming these constraints is central to boosting manufacturing’s contribution to India’s overall productivity and long-term growth, as per IMF.
Research & Development (R&D)
The report notes that India spends far less on research and development than major emerging economies, and most of this spending comes from the government rather than private industry. This limits the creation of new technologies, products, and high-value industries. To boost productivity and long-term growth, the IMF recommends increasing overall R&D investment, encouraging more private-sector participation, strengthening university-industry partnerships, and improving the quality of research institutions. In simple terms, India needs to invest more in new ideas and technologies to stay competitive and create better jobs.
Land for Manufacturing
The IMF finds that one of the biggest barriers to expanding manufacturing in India is the difficulty of acquiring and accessing land. The report recommends modernising land records, simplifying regulations, speeding up clearances, and developing ready-to-use industrial land with reliable infrastructure.
Innovation
While India has a strong digital ecosystem and vibrant startup scene, the report says innovation is not spreading widely enough across sectors. Many firms, especially small and medium enterprises (SMEs), lack access to technology, finance, skilled workers, and research networks. The IMF recommends policies that support broader technology adoption – like easier financing for innovative firms, stronger intellectual property protection, better skills training, and targeted support for high-tech manufacturing.
In everyday terms, India needs to help more companies use modern technology so innovation drives growth beyond just the tech and startup hubs.
Insolvency (bankruptcy system)
According to the IMF, India’s insolvency system has improved, yet it still faces delays, backlogs and capacity constraints that slow down the resolution of distressed companies. When insolvency cases drag on, workers lose jobs, banks lose money and valuable assets sit idle.
The IMF recommends strengthening the insolvency process by increasing court capacity, improving coordination among creditors, and refining rules so cases move faster and more predictably. In simple terms, India needs a faster, smoother bankruptcy process so struggling companies can either recover or exit quickly, freeing up resources for productive use.
Profits for few rather than wellbeing of all
The IMF report reflects a dated and narrow economic paradigm that continues to prescribe fiscal restraint, infrastructure-led growth, market-based reforms, and private investment as the central engines of development – despite clear evidence that India has followed this formula for the past three decades with disappointing outcomes. Private investment remains sluggish, job creation weak, and inequality at historic highs. Yet, the report is stuck on the same dogmas: keep deficits tight, focus public spending on capital investment, liberalise markets, and rely on targeted safety nets for the poor.
This approach sidelines the fact that India’s growth model has failed to generate secure livelihoods for the majority and has significantly widened disparities in income, wealth, and access to essential services.
Expectedly, the report has very little to say about strengthening universal social and economic rights – education, healthcare, pensions, decent work, or basic income security. Instead of foregrounding public provisioning, the IMF praises India’s controversial labour law reforms that have been widely criticised by trade unions for diluting worker protections, enabling hire-and-fire practices, and weakening collective bargaining. By treating labour merely as a “factor of production” that needs flexibility, rather than as people deserving rights and security, the report reinforces a framework that undermines workers instead of improving their well-being.
On taxation, the report subtly nudges India toward “fiscal consolidation” through higher consumption and indirect taxes – burdens that fall disproportionately on ordinary people. What it avoids entirely is the need to tax the ultra-rich and large corporations more effectively.
This silence is stark in a country where billionaire wealth has exploded, often in sectors heavily shaped by state policy and public resources. Instead of advocating progressive taxation that could fund social rights and reduce inequality, the report leans toward squeezing everyday consumers while letting the super-rich off the hook.
The Fund’s endorsement of easier land acquisition is equally troubling. It frames land as a bottleneck to manufacturing, ignoring how land acquisition in India has often dispossessed communities, eroded forest and common lands, and intensified ecological degradation. At a time when India is highly climate-vulnerable, the IMF’s push for smoother land conversion and industrial access blatantly overlooks the environmental and social costs. Rather than advocating stronger safeguards, community rights or ecological assessments, the report privileges corporate convenience over people’s livelihoods and environmental resilience.
Finally, while the IMF acknowledges risks in the NBFC sector, it sidesteps the deeply predatory lending practices that have proliferated in recent years. For millions of low-income borrowers, NBFCs are today’s exploitative moneylenders – charging exorbitant interest rates (sometimes approaching 200%), using aggressive and sometimes violent recovery methods, and trapping families in cycles of debt. Yet, the IMF report focuses narrowly on capital buffers and regulatory alignment, ignoring the consumer-level crisis in small-ticket lending. It also fails to adequately scrutinise the troubling trend of commercial banks increasingly funnelling money to NBFCs, which then lend at much higher rates, effectively outsourcing high-risk lending without adequate supervision.
In sum, the report reinforces a growth model that prioritises markets, corporations, and fiscal orthodoxy over rights, equity, and social protection—while glossing over the lived realities of workers, borrowers, and communities at the receiving end of India’s current economic trajectory.
This article was originally published in The Wire
