World Bank lifts India’s FY26 growth outlook to 6.5%, trims FY27 forecast amid US tariff impact
New Delhi: The World Bank on Tuesday raised its forecast for India’s FY26 GDP growth to 6.5% from 6.3% projected in June, while cutting its FY27 estimate by 20 basis points to 6.3%.
The downgrade for FY27 reflects the impact of higher-than-expected tariffs imposed on Indian exports by US President Donald Trump.
Despite the tariff headwinds, India is expected to remain the world’s fastest-growing major economy, supported by resilient domestic demand, according to the World Bank’s South Asia Outlook report.
“The government’s reforms to the goods and services tax (GST)—reducing the number of tax brackets and simplifying compliance—are expected to support activity… Forecast for FY27 has been downgraded, however, as a result of the imposition of a 50 percent tariff on about three-quarters of India’s goods exports to the United States,” the report said.
The World Bank noted that domestic conditions, including agricultural output and rural wage growth, have performed better than anticipated.
For South Asia, the Bank expects growth to touch 6.6% in 2025, before moderating to 5.8% in 2026, partly due to the US tariffs affecting India.
“If there is any improvement in India's access to foreign markets, including a cut in tariffs, it would be beneficial for growth,” said Franziska Ohnsorge, World Bank Chief Economist for South Asia, during a press briefing.
The report highlighted that nearly one-fifth of India’s goods exports were directed to the United States in 2024, equivalent to around 2% of India’s GDP.
Citing robust public infrastructure spending, strong credit growth, and easing monetary policy, the Bank said India’s investment momentum remains strong. It added, “Strong rural wage growth has offset slowdowns in urban consumption, as seen in weakness in car sales and personal credit.”
India is also projected to become the world’s fastest-growing source of energy demand over the medium term, eventually surpassing China as the largest driver of global energy consumption by 2050.
The World Bank noted that India’s real GDP growth in the April–June quarter of FY25 exceeded expectations, accelerating to 7.8%.
Commenting on trade reforms, the report said previous liberalisation measures in Bangladesh and Sri Lanka led to faster employment growth but had limited and uncertain effects in India.
It cautioned that sustained trade tensions and sluggish global investment could trigger a period of slow global growth, potentially spilling over to South Asia.
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