World Bank Lifts India’s FY26 Growth Forecast to 6.5%, Trims FY27 Outlook

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Synopsis: The World Bank has raised India’s FY26 GDP growth forecast to 6.5% (from 6.3%) while trimming FY27 to 6.3%, citing the impact of higher US tariffs on Indian exports. Despite this, India is expected to remain the world’s fastest-growing major economy, supported by resilient consumption and ongoing reforms.

New Delhi: The World Bank, in its latest South Asia Outlook, increased India’s growth projection for FY2025–26 (FY26) to 6.5% and lowered the estimate for FY2026–27 (FY27) to 6.3%. The revision reflects robust domestic demand alongside external headwinds from higher-than-expected tariffs on Indian goods entering the United States.

Key Changes to India’s Outlook

• FY26 GDP: Upgraded to 6.5% (from 6.3%).
• FY27 GDP: Trimmed to 6.3% (–20 bps) due to US tariff impact on exports.
• Consumption Support: Continued strength in private consumption underpins growth momentum.
• Reform Tailwinds: GST simplification—fewer tax slabs and easier compliance—expected to aid economic activity.

Tariffs & External Headwinds

The World Bank cited the imposition of a 50% tariff on about three-quarters of India’s goods exports to the US as a key reason for the FY27 downgrade. Nearly one-fifth of India’s goods exports went to the US in 2024—about 2% of GDP—making external market access an important swing factor. Officials noted that any improvement in India’s access to foreign markets, including tariff cuts, would be growth-positive.

South Asia Context

• Regional growth (2025): Projected at 6.6%.
• Regional growth (2026): Seen easing to 5.8%, partly reflecting tariff spillovers to India and the region.

Energy Demand Outlook

India is expected to be the world’s fastest-growing source of energy demand in the medium term and is projected to surpass China by 2050 as the single largest source of energy demand, underscoring the scale of India’s industrial and consumption expansion.

What It Means

• Domestic demand remains the primary growth engine, cushioning external shocks.
• Policy continuity—especially tax and compliance simplification—can help sustain momentum.
• Export competitiveness and market access will be crucial for FY27 and beyond amid tariff headwinds.

Bottom Line: Even with softer FY27 assumptions due to trade frictions, India is poised to retain its position as the fastest-growing major economy, supported by resilient consumption, reform progress, and a long-run upswing in energy demand.