Highlights:
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World Bank raises India’s FY26 GDP forecast to 6.5%.
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FY27 growth cut to 6.3% due to US tariffs on $50B of exports.
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Textiles, gems & jewelry, and shrimp sectors most affected.
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Strong domestic demand, rural wages, and agriculture support growth.
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Risks include global slowdown, policy uncertainty, and trade tensions.
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India remains the fastest-growing major economy globally.
The World Bank has projected India’s GDP growth at 6.5% for FY26 (April 2025–March 2026), citing strong domestic demand, rising rural wages, and robust agricultural output. At the same time, the World Bank warns that external risks, particularly new US tariffs, could slow growth in FY27.
World Bank Raises FY26 Growth Forecast
The World Bank raised India’s GDP growth forecast for FY26 from 6.3% to 6.5%. This upward revision reflects a combination of domestic factors, including stronger rural incomes, rising private consumption, and higher agricultural output. Policy measures such as GST 2.0, which simplified compliance and lowered tax rates for businesses, have also contributed to stronger domestic growth.
In the first quarter of FY26 (April–June 2025), India recorded a real GDP growth of 7.8%, the fastest in five quarters, signaling a robust start to the fiscal year.
Domestic Drivers of Growth Highlighted by World Bank
- Strong rural wage growth supporting household consumption.
- Increased public and private investment in infrastructure.
- Credit growth facilitating higher private-sector spending.
- Agricultural gains boosting output and rural demand.
The World Bank notes that these domestic factors are expected to buffer the Indian economy against external shocks, including trade-related disruptions.
World Bank Lowers FY27 Forecast Due to US Tariffs
For FY27 (April 2026–March 2027), the World Bank trimmed India’s growth forecast by 20 basis points to 6.3%. The downgrade is primarily due to the US imposing 50% tariffs on roughly three-quarters of Indian goods exports, affecting around $50 billion in trade.
Key sectors affected include textiles, gems and jewelry, and shrimp processing. With approximately 20% of India’s goods exports going to the US—equivalent to 2% of GDP—these tariffs are expected to slow export-driven growth.
The World Bank emphasizes that while exports may slow, India’s strong domestic economy could sustain overall growth momentum.
Domestic Economy Remains Resilient, According to World Bank
Despite external trade pressures, the World Bank reports that India’s domestic economy remains resilient. The combination of government infrastructure investments, rising rural incomes, and credit expansion is expected to sustain private consumption.
Improved agricultural output and policy reforms are also cited as key factors in maintaining domestic growth. “The pace of reforms and policy implementation will be critical in sustaining momentum,” the World Bank report states.
Risks and Challenges Identified by World Bank
The World Bank highlights several potential downside risks for India’s medium-term growth:
- Global economic slowdowns and geopolitical uncertainty.
- Domestic policy uncertainties that could affect investment.
- Labor market disruptions due to technological change.
- Escalating trade tensions, particularly with the US.
While India remains resilient, the World Bank warns that the external environment, especially trade disputes, will be a decisive factor in FY27 growth outcomes.
Regional and Global Context
The World Bank projects India to remain the fastest-growing major economy globally, outperforming other South Asian nations and emerging markets. South Asia’s overall growth is expected to be 6.6% in 2025, slowing to 5.8% in 2026, mainly due to the impact of US tariffs on Indian exports.
According to the World Bank, India’s domestic-driven growth model will help maintain its global economic leadership, even amid regional and trade-related challenges.
The World Bank forecasts highlight a strong FY26 for India, supported by domestic demand, policy reforms, and agricultural growth. At the same time, rising US tariffs pose risks to export-dependent sectors and could moderate growth in FY27. Policymakers and businesses will need to rely on domestic resilience and continued reform implementation to sustain India’s growth trajectory.
