World Bank raises India FY26 growth forecast to 6.5%

The World Bank on Tuesday raised India’s economic growth projection for 2025–26 to 6.5%, up from its earlier estimate of 6.3% made in June, citing strong domestic consumption, improved rural demand, and policy reforms such as the recent Goods and Services Tax (GST) rationalisation.The upgrade comes in the World Bank’s biannual South Asia Development Update, which said that India is set to remain the world’s fastest-growing major economy, supported by robust consumption growth and sustained investment momentum.“Domestic conditions, particularly agricultural output and rural wage growth, have been better than expected. The government’s reforms to the Goods and Services Tax reducing the number of tax brackets and simplifying compliance are expected to support activity,” the report noted.However, the multilateral lender trimmed India’s 2026–27 growth forecast by 20 basis points to 6.3%, warning that steeper-than-expected U.S. tariffs under President Donald Trump’s administration could weigh on India’s exports.“India was initially expected to face lower U.S. tariffs than its competitors in April, but by the end of August, it was subject to significantly higher duties,” the World Bank said.
Strong Domestic Performance Boosts Outlook
The upward revision follows better-than-expected GDP growth of 7.8% in the April–June quarter, supported by solid manufacturing output, consumption recovery, and government-led infrastructure investment. The World Bank noted that this performance reflects India’s economic resilience amid global trade headwinds.According to information,several institutions have revised their forecasts following the robust first-quarter data. The Reserve Bank of India (RBI) recently raised its FY26 growth projection to 6.8%, while the Asian Development Bank (ADB) maintained its forecast at 6.5% for both FY26 and FY27.
Impact of U.S. Tariffs and Global Trade Slowdown
The World Bank cautioned that the higher U.S. tariffs could slow India’s export momentum and marginally impact South Asia’s broader growth outlook. The region’s average growth is projected to fall to 5.8% in 2026, down from 6.6% in 2025, as global trade faces mounting challenges.India, which contributes nearly 70% of South Asia’s total economic output, remains the region’s main growth engine. The report projected that Bangladesh will grow at 4.8% in FY26 and 6.3% in FY27, while Nepal and Sri Lanka are expected to record slower recoveries.
Energy and Structural Transformation Outlook
The World Bank also highlighted India’s growing role in the global energy landscape, forecasting that the country will surpass China to become the world’s largest source of energy demand by 2050.The report underscored South Asia’s dual economic structure, with a “less productive traditional economy” and a “dynamic modern one,” and called for structural reforms to enhance productivity.“South Asia will better achieve its ambitions if more workers shift from the traditional to the modern economy. Lowering tariffs and leveraging artificial intelligence can help,” it stated.
WTO Downgrades Global Trade Outlook:
Meanwhile, in Geneva, the World Trade Organization (WTO) sharply lowered its forecast for global merchandise trade volume growth to 0.5% in 2026, down from its earlier projection of 1.8%, citing delayed impacts from U.S. tariffs.“The outlook for next year is bleaker … I am very concerned,” WTO Director-General Ngozi Okonjo-Iweala said,according to information.However, she added that the multilateral trading system remains a stabilising force amid global trade disruptions.For 2025, the WTO upgraded its trade growth projection to 2.4%, up from 0.9% earlier, driven by front-loaded U.S. imports ahead of tariff hikes and increased trade in AI-related goods.Despite the global headwinds, the World Bank reaffirmed that India’s domestic demand, policy reforms, and resilient services sector will help it sustain strong, broad-based growth, maintaining its position as the world’s fastest-growing major economy for the foreseeable future.

(Business Correspondent)