World Bank Raises India FY26 Growth Forecast to 6.5%

India’s economic growth forecast for 2025-26 has been upgraded by the World Bank to 6.5%. This revision reflects stronger domestic conditions and the positive effects of recent Goods and Services Tax (GST) reforms. However, the growth projection for 2026-27 has been lowered to 6.3% due to the impact of increased U.S. tariffs on Indian exports.

Recent Growth Performance

India’s real GDP growth in the April-June 2025 quarter reached 7.8%, surpassing expectations. This acceleration was driven by robust private consumption and investment. Additionally, inflation remained lower than anticipated, supporting economic activity.

Factors Supporting Growth

Domestic factors such as improved agricultural output and rising rural wages have boosted demand. The government’s GST reforms, which reduced tax brackets and eased compliance, have encouraged business activity and formalisation. These changes have helped sustain consumption-led growth.

Impact of U.S. Tariffs

The World Bank has downgraded India’s growth forecast for 2026-27 from 6.5% to 6.3%. This is mainly due to the imposition of a 50% tariff on nearly 75% of India’s exports to the United States. The tariffs are expected to reduce export competitiveness and dampen growth momentum.

India’s Position in Global Economy

Despite external challenges, India is projected to remain the fastest growing major economy in the world. Continued strength in domestic consumption and investment underpins this outlook. The country’s economic resilience is supported by structural reforms and a large domestic market.

Policy and Reform Implications

The GST reforms demonstrate the government’s commitment to simplifying tax structures and improving the business environment. Continued focus on rural development and wage growth is crucial for sustaining demand. Addressing trade tensions and diversifying export markets will be important for future growth.