World Bank Projects India’s FY26 Growth at 6.3%, Maintaining Lead Among Major Economies
Global Growth Projections for 2025
The global economy is anticipated to experience a slowdown, with growth expected to dip to 2.3 percent in 2025, which is nearly half a percentage point lower than initial forecasts made at the beginning of the year. In April, the World Bank revised India’s growth outlook for the fiscal year 2025-26 down to 6.3 percent, a decrease from the 6.7 percent projected in January.
India’s Economic Outlook Amid Global Uncertainties
On Tuesday, the World Bank confirmed India’s economic growth forecast at 6.3 percent for the period of 2025-26 due to export pressures stemming from global uncertainties. Despite this downgrade, India is expected to retain its position as the fastest-growing major economy in the world. The latest report from the World Bank highlights that the ongoing trade tensions and uncertain policy environments are expected to cause a significant decline in global growth, marking the slowest pace since 2008, not counting periods of outright recession.
Impact of Global Trade on Economic Forecasts
The recent turmoil has led to growth projections being revised down in approximately 70 percent of global economies, transcending all regions and income categories. Following an unexpected growth rate of 6 percent in 2024, economic activity in South Asia is experiencing a slowdown due to increasing trade barriers, rising policy uncertainty, and financial market instability.
Sector-Specific Growth Insights
According to the report, India’s growth will moderate in FY2024-25 (from April 2024 to March 2025), which reflects a slowdown in industrial output growth. However, the construction and service sectors are showing stable growth, and agricultural output is rebounding from severe drought impacts, buoyed by strong rural demand. “India is projected to sustain the fastest growth rate among the major global economies at 6.3 percent for FY2025-26,” the report noted. Nevertheless, this forecast marks a 0.4 percentage point downgrade from earlier January predictions, primarily due to decreased exports resulting from diminished activity in key trading partners and heightened global trade barriers.
Comparative Growth Expectations
For context, the World Bank anticipates that China will experience a growth rate of 4.5 percent in 2025, decreasing to 4 percent the following year. Last week, the Reserve Bank of India reiterated its GDP growth forecast for the current fiscal year at 6.5 percent, describing the Indian economy as displaying resilience and opportunities amidst global uncertainties. The World Bank also indicates that investment growth is likely to slow down, mainly due to rising global policy unpredictability.
Future Growth Trends in India and South Asia
Looking further ahead, economic growth is expected to recover to an average of 6.6 percent per year during FY2026-27 and FY2027-28, partly fueled by robust service activities that contribute to a rebound in exports. The report forecasts India’s growth for 2026-27 at 6.5 percent, which is a slight reduction of 0.2 percentage point from January’s estimates. In South Asia, growth is projected to ease to 5.8 percent in 2025 as increasing trade barriers negatively impact exports, business confidence, and investment decisions across the region. However, growth is expected to rise to an average of 6.2 percent per year in 2026-27 as activity in India improves along with renewed momentum elsewhere, aligning with the region’s potential growth estimates.
Global Sentiment and the Economic Outlook
The report asserts that while a global recession is not anticipated, if the next two-year forecasts come to fruition, the average global growth throughout the early 2020s will be the slowest of any decade since the 1960s. However, it is suggested that global growth could recover more rapidly than expected if key economies succeed in alleviating trade tensions, thereby diminishing overall policy uncertainty and financial volatility.
Recommendations for Developing Economies
The analysis reveals that if current trade disputes are resolved and tariffs are halved from their levels in late May, global growth could improve by 0.2 percentage point on average throughout 2025 and 2026. The report advocates for developing economies to liberalize trade proactively by forging strategic trade and investment partnerships with other nations and diversifying their trade—particularly through regional agreements. With limited government resources and increasing developmental needs, policymakers are encouraged to focus on utilizing domestic revenues, prioritizing fiscal support for the most vulnerable populations, and reinforcing fiscal frameworks.
