World Bank raises India's FY26 growth forecast to 6.5%
What's the story
The World Bank has revised India's growth forecast for the fiscal year 2025-26 (FY26) to 6.5%, up from its previous estimate of 6.3% made in June. The revision comes on the back of strong domestic demand, a robust rural recovery, and positive tax reforms such as the revised Goods and Services Tax (GST) slabs. The revision comes after India posted stronger-than-expected performance in the first half of FY26, with Q1FY26 real GDP growth reaching 7.8%.
Economic drivers
GST reforms likely to boost economic activity: World Bank
The World Bank noted that the government's GST reforms, which include reducing tax brackets and simplifying compliance, are likely to bolster economic activity. "Domestic conditions, particularly agricultural output and rural wage growth, have been better than expected," it said in its South Asia Development Update. The report also highlighted that India is set to retain its position as the world's fastest-growing major economy, thanks to strong consumption growth.
Economic resilience
Investment growth remains strong
The World Bank emphasized that investment growth remains strong, backed by public infrastructure projects, robust credit growth, and an accommodative monetary policy. It also noted that strong rural wage growth has compensated for the slowdown in urban consumption. "Industrial production and imports have largely maintained their strong momentum," the report said. The Reserve Bank of India (RBI) has also projected a GDP growth of around 7% for Q2FY26.
Trade concerns
FY27 forecast revised down due to US tariffs
Despite the positive growth forecast for FY26, the World Bank has revised its FY27 forecast to 6.3% from an earlier estimate of 6.5%. The revision is due to higher US tariffs on Indian exports, which could affect India's economic momentum next year. "India had been expected to face lower US tariffs than its competitors in April but as of the end of August it faces considerably higher tariffs," the report said.
Tariff impact
South Asia's overall growth could be affected
The World Bank report said that nearly one-fifth of India's goods exports went to the US in 2024, accounting for about 2% of its GDP. The high tariffs imposed by US President Donald Trump are not only expected to affect India but also drag down South Asia's overall growth rate in 2026. The region's growth is projected at a robust 6.6% this year but could slow down to 5.8% next year due to these trade measures.