IMF Raises India’s Growth Outlook to 6.4%: What It Means for MSMEs and the Road Ahead

In a welcome development that signals renewed optimism for the Indian economy, the International Monetary Fund (IMF) has revised India’s GDP growth forecast upward to 6.4% for 2025. The July 2025 World Economic Outlook Update also places India’s growth at 6.4% for FY27, up by 0.1 percentage point from previous estimates. The move reflects a more favourable external environment, cooling inflation, and signs of fiscal resilience.

The news arrives at a critical juncture, not just for policymakers and corporate boardrooms, but also for India’s massive micro, small, and medium enterprises (MSME) sector, which contributes nearly 30% to the GDP and employs over 110 million people.

A Global Vote of Confidence

After a brief dip in sentiment in April, when the IMF trimmed India's FY26 growth forecast to 6.2% citing global uncertainties, this revision acts as a confidence booster. India’s projected growth of 6.7% for calendar year 2025 and 6.4% for 2026 places it among the fastest-growing major economies in the world.

Global peers are taking note. S&P Global Ratings recently lifted its growth estimate for India to 6.5% for FY26, following its earlier downward revision. This change is predicated on key assumptions such as a normal monsoon, stable oil prices, and potential monetary easing.

For India’s MSMEs, this momentum offers an opening to ride the recovery wave, provided they can navigate supply chain challenges, capital access limitations, and shifting policy landscapes.

MSMEs: Poised to Capitalise on Growth

The IMF’s latest projection is not just about numbers; it’s a signal that India’s economic engine is picking up steam. And at the heart of this engine lies the MSME sector.

With India poised to overtake Japan and become the fourth-largest economy in the world with a projected GDP of $4.187 trillion in 2025, MSMEs must prepare for the opportunities and responsibilities that come with such global stature.

From agro-processing units in Punjab to textile clusters in Tamil Nadu, MSMEs form the bedrock of India’s decentralised economic fabric. This sector stands to benefit significantly from rising domestic consumption, growing exports, and a friendlier macroeconomic environment. A 6.4% GDP growth rate means more demand for MSME goods and services across rural, urban, and global markets.

However, to truly harness the potential, there is a need for targeted policy support and sector-specific handholding.

Key Areas Where MSMEs Can Benefit

Export Opportunities:
As global trade routes shift due to geopolitical realignments, India is emerging as a viable export alternative. MSMEs in electronics, auto components, and textiles are in a strong position to become part of global value chains.

Digital Inclusion: The continuing digital transformation and fintech boom offer MSMEs easier access to credit and e-commerce. The growth momentum could accelerate digital adoption among small businesses, boosting productivity and market reach.

Infrastructure Development: Increased government capital expenditure and a growing GDP often go hand in hand. For MSMEs in construction, logistics, and allied sectors, this growth will translate into rising order books and business expansions.

Consumer Confidence and Demand: A growing economy restores confidence among middle-income consumers, driving up domestic demand. MSMEs catering to consumer goods, food processing, and services stand to gain the most.

Ease of Doing Business: As India aims to climb further in global rankings, ongoing reforms in compliance, taxation, and labour laws are expected to improve the business environment, particularly for small enterprises.

Challenges Remain: Growth Must Be Inclusive

While the IMF upgrade is encouraging, it does not guarantee uniform benefits for all. The MSME sector continues to face significant headwinds:

• Credit Crunch: Many small businesses still struggle to access formal credit, especially in Tier II and III towns.

• Compliance Burden: Despite digital tools, complex GST structures and regulatory paperwork continue to weigh down micro-entrepreneurs.

• Skill Gaps: With technology advancing rapidly, upskilling and workforce training remain patchy in several MSME clusters.

• Supply Chain Risks: Global uncertainties and regional disruptions can impact input costs and delivery timelines.

To ensure that growth trickles down to the grassroots, it is vital that policy support for MSMEs remains robust and adaptive.

Looking Ahead: A Defining Moment for India and Its Entrepreneurs

The IMF’s revision, coupled with S&P’s optimistic forecast, affirms that India is not just recovering from the post-pandemic shock; it is reinventing itself. On current trends, India will surpass Japan in 2025 to become the world’s fourth-largest economy and overtake Germany by 2027 to claim the third spot.

These are more than just bragging rights—they represent a tectonic shift in the global economic order. But for this transformation to be sustainable and inclusive, the MSME sector must be at the centre of the growth story.