India to Remain World's Fastest Growing Economy Despite Slowdown

India will remain the fastest-growing major economy for the next two years, the World Bank said on Thursday, while keeping its earlier growth forecast for India unchanged at 6.7 percent for the financial year 2025-26. According to its flagship Global Economic Prospects report, growth for FY27 has been revised downwards by 0.1 percentage point.

“The services sector is expected to enjoy sustained expansion, and manufacturing activity is anticipated to strengthen, supported by government initiatives to enhance logistics infrastructure and improve the business environment through tax reforms,” said the world Bank.

On the back of a gradual decline in inflation and interest rates, the GEP report also forecasts that the world economy to expand by 2.7% in both 2025 and 2026, the same pace as in 2024.

The report also highlighted that gross domestic product (GDP) growth in the broader South Asian region is projected to rise to 6.2% in 2025 and 2026, majorly driven by India's robust growth. The growth was 6% in FY24

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Furthermore, India's Per capita GDP continues to move closer to advanced country levels, though at a slow pace, along with China.

“The next 25 years will be a tougher slog for developing economies than the last 25,” Indermit Gill, Chief Economist at the World Bank, noted.

“Most of the forces that once aided their rise have dissipated. In their place, headwinds-high debt, weak investment and productivity growth, and rising costs of climate change-have come. Developing economies will need a new playbook that emphasizes domestic reforms to quicken private investment, deepen trade relations, and promote more efficient use of capital, talent and energy,” he added.

India's Low Growth Projection

India's growth projection dropped significantly to 6.5% for FY25 from earlier 8.2% in FY24. This deceleration is driven by a slowdown in investment and weak manufacturing growth.

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“However, services activity has been steady, while growth in the agricultural sector has recovered. Private consumption growth has remained resilient, primarily driven by improved rural incomes. In contrast, higher inflation and slower credit growth have curbed consumption in urban areas,” the World Bank said.

The World Bank said fiscal policies in the majority of the countries in the South Asian region, including India, are expected to be generally tight over the forecast horizon.

“In India, fiscal deficits are expected to continue shrinking, largely on account of growing tax revenues,” the report noted.