In a wide-ranging report on Asia's third-biggest economy, the IMF commended government economic reforms but called for action to contain inflation and increase the number of women in the workforce.
The Washington-based institution forecast GDP growth for the 2018-19 fiscal year at 7.3 percent, rising to 7.5 percent the following year.
The pickup follows a fall to 6.7 percent growth in 2017-18.
The IMF said India was facing a "broadly positive outlook" thanks to "strengthening investment and robust private consumption" but warned of risks from higher fuel prices and a weakening rupee.
Growth expanded to 7.7 percent for the quarter from January to March, the highest for seven quarters, as the economy started to recover from a rocky start to Modi's economic initiatives.
Despite teething problems, the IMF commended Modi's government for introducing a nationwide goods and services tax (GST) in 2017, which replaced a myriad of state and national taxes.
But it added that GST, which sets different value-added taxes for different types of goods, could be improved.
"GST has a complex structure with a relatively high number of rates (and exemptions), which could be simplified," it said.
India's quarterly growth fell as low as 5.7 percent in mid-2017 as the economy readied for GST and reeled from a shock cash ban in late 2016.
The decision to scrap 86 percent of currency notes, known as "demonetization," in November 2016 dealt a major blow to the economy.
The IMF noted that the move had caused "an acute monetary shock" but said the economy has since recovered.
The IMF also said its directors stressed "the importance of modernizing labor laws and regulations and other measures to help increase formal employment, particularly the employment of women."