World Bank revises India's FY26 growth projection to 6.5%, warns of US tariffs weighing on India's exports.
Cites strong domestic demand and macroeconomic stability for the revision.
Domestic demand, Tax reforms, and policy shifts is expected boost domestic economy.
The World Bank on Tuesday raised India’s growth forecast for the financial year 2025-26 to 6.5% from its earlier projection of 6.3% in June, citing resilient domestic demand, positive impact of the tax reforms, and strong rural recovery.
“India is expected to remain the world’s fastest-growing major economy, underpinned by continued strength in consumption growth,” the World Bank said in its South Asia Development Update.
Optimism Despite the Uncertainties
In August, credit rating agency S&P Global upgraded India’s ratings on long-term sovereign bond to BBB from BBB-, citing strong domestic economic resilience.
The Organisation for Economic Co-operation and Development (OECD) also revised India’s growth projection to 6.7% last month. Fitch Ratings too revised India’s Gross Domestic Product growth to be at 6.9% from 6.5%.
Jeremy Zook, Director of Asia Sovereign Ratings at Fitch Ratings, in an interview with Outlook Business told India’s strong growth outlook and improving macroeconomic stability and fiscal credibility will be the critical consideration for rating going ahead.
The revision now from the World Bank reinforces the ongoing optimism about India’s growth, driven primarily by favourable domestic conditions including a better-than-expected agricultural output and rural wage growth. The government’s tax reforms on the Goods and Services Tax (GST) are further expected to boost economic growth.
World Bank’s projection also follows a stronger-than-expected economic performance in the first half of the current financial year, with the real GDP at 7.8% for the quarter ended June, posting the fastest pace in five quarters. The Reserve Bank of India (RBI), in its latest assessment has forecasted a growth of around 7% for the September quarter while upwardly revising the FY26 projection to 6.8% from 6.5% earlier.
However, the World Bank warns the high reciprocal tariffs from the US to weigh on India’s exports. “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.
Meanwhile, economists and policymakers expect the GST cut and policy shifts to support household spending, reinforcing a consumption-driven growth despite the rapidly changing global landscape and headwinds.
